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For over two years, the world has been battling the health and economic consequences of the COVID‐19 pandemic. This paper provides an account of the worldwide economic impact of the COVID‐19 shock, measured by GDP growth, employment, government spending, monetary policy, and trade. We find that the COVID‐19 shock severely impacted output growth and employment in 2020, particularly in middle‐income countries. The government response, mainly consisting of increased expenditure, implied a rise in debt levels. Advanced countries, having easier access to credit markets, experienced the highest increase in indebtedness. All regions also relied on monetary policy to support the fiscal expansion. The specific circumstances surrounding the COVID‐19 shock implied that the expansionary fiscal and monetary policies did not put upward pressure on prices until 2021. We also find that the adverse effects of the COVID‐19 shock on output and prices have been significant and persistent, especially in emerging and developing countries.

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https://doi.org/10.20955/wp.2022.030

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Open Access

Peer-reviewed

Research Article

Effects of COVID-19 on trade flows: Measuring their impact through government policy responses

Contributed equally to this work with: Javier Barbero, Juan José de Lucio, Ernesto Rodríguez-Crespo

Roles Conceptualization, Data curation, Formal analysis, Investigation, Methodology, Project administration, Resources, Software, Supervision, Validation, Visualization, Writing – original draft, Writing – review & editing

Affiliation Joint Research Centre (JRC), European Commission, Seville, Andalucía, Spain

Roles Conceptualization, Data curation, Formal analysis, Funding acquisition, Investigation, Methodology, Project administration, Resources, Software, Supervision, Validation, Visualization, Writing – original draft, Writing – review & editing

* E-mail: [email protected]

Affiliation Department of Economic Structure and Development Economics, Universidad de Alcalá de Henares, Alcalá de Henares, Madrid, Spain

Affiliation Department of Economic Structure and Development Economics, Universidad Autónoma de Madrid, Madrid, Spain

• Javier Barbero, 
• Juan José de Lucio, 
• Ernesto Rodríguez-Crespo

• Published: October 13, 2021
• https://doi.org/10.1371/journal.pone.0258356
• Peer Review
• Reader Comments

This paper examines the impact of COVID-19 on bilateral trade flows using a state-of-the-art gravity model of trade. Using the monthly trade data of 68 countries exporting across 222 destinations between January 2019 and October 2020, our results are threefold. First, we find a greater negative impact of COVID-19 on bilateral trade for those countries that were members of regional trade agreements before the pandemic. Second, we find that the impact of COVID-19 is negative and significant when we consider indicators related to governmental actions. Finally, this negative effect is more intense when exporter and importer country share identical income levels. In the latter case, the highest negative impact is found for exports between high-income countries.

Citation: Barbero J, de Lucio JJ, Rodríguez-Crespo E (2021) Effects of COVID-19 on trade flows: Measuring their impact through government policy responses. PLoS ONE 16(10): e0258356. https://doi.org/10.1371/journal.pone.0258356

Editor: Stefan Cristian Gherghina, The Bucharest University of Economic Studies, ROMANIA

Received: April 12, 2021; Accepted: September 26, 2021; Published: October 13, 2021

Copyright: © 2021 Barbero et al. This is an open access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Data Availability: The data underlying the results presented in the study are available from UN Comtrade ( https://comtrade.un.org ), the Centre d'Études Prospectives et d'Informations Internationales (CEPII) Gravity database ( http://www.cepii.fr/cepii/en/bdd_modele/presentation.asp?id=8 ) and from Our World in Data COVID-19 Git Hub repository ( https://github.com/owid/covid-19-data/tree/master/public/data ). The three datasets are publicly available for all researchers. Merging the three datasets and following the steps described in the “Model description and estimation strategy” section readers can replicate the results of this manuscript.

Funding: de Lucio and Rodríguez-Crespo thank financial support from Universidad de Alcalá de Henares (UAH) and Banco Santander through research project COVID-19 UAH 2019/00003/016/001/007. De Lucio also thanks financial support from Comunidad de Madrid and UAH (ref: EPU-INV/2020/006 and H2019/HUM5761).

Competing interests: The authors have declared that no competing interests exist.

Introduction

The world is facing an unexpected recession due to the disruption of the COVID-19 pandemic in the global economy. In parallel with the consequences of the 2008–2009 crisis, international trade has once again collapsed. World trade volumes decreased by 21% between March and April 2020, while during the previous crisis the highest monthly drop was 18%, between September and October 2008. Cumulative export growth rate for the period December 2019– March 2020 was -7%, while for the period July 2008 –February 2009 it was -0,8%. The 2020 downturn was less prolonged than that caused by the latter crisis. Trade volumes in August 2020 only showed a 3% decrease compared to March 2020. The World Trade Organization (WTO) estimated that international merchandise trade volumes fell by 9.2% in 2020, a figure similar in magnitude to the global financial crisis of 2008–2009, although factors such as the economic context, the origins of the crisis and the transmission channels are deemed to be very distinct from the previous crisis [ 1 ].

Due to its rapid propagation, a proper evaluation of the economic impacts of COVID-19 crisis is not only desirable but challenging if the aim is to mitigate uncertainty [ 2 ]. The COVID-19 crisis has its origins in the policy measures adopted to combat the health crisis, while the 2008–2009 crisis had economic roots contingent on financially related issues. At the current time, the collapse of international trade has been driven by the voluntary and mandatory confinement measures imposed on world trade. We aim to analyse the impact of said confinement measures on trade. Estimating COVID-19 impacts on trade would shed light on the cost of confinement measures and the evolution and forecast of bilateral trade.

From an empirical point of view, we resort to [ 3 ], who use quarterly data for the period 2003–2005 in order to analyse the impact of the SARS epidemic on firms. They show that regions with higher transmission of SARS experienced lower import and export growth compared to those in the unaffected regions. The propagation of a virus resembles natural disasters, with both interpreted as external non-economic based shocks, the effects of which have been addressed already in the literature (e.g., [ 4 – 9 ]).

Another strand of the literature directly analyses the effects of the COVID-19 pandemic on global trade in terms of the transmission mechanism of the shock: demand, supply and global supply chains. Some authors argue that demand factors have played an important role in explaining the shock [ 10 , 11 ] conclude that both shocks (demand and supply) are present in the crisis [ 1 ] highlight the role of global value chains in the transmission of shocks [ 12 ] focus on supply chain disruptions and reveal that those sectors with large exposure to intermediate goods imports from China contracted more than other sectors [ 13 ]. Focus on the role of global supply chains on the GDP growth for 64 countries during the COVID-19 pandemic and show that one quarter of the total downturn is due to global supply chains transmission. They also conclude that in general global supply chains, make countries more resilient to pandemic-induced contractions in labour supply. Finally, the collapse in trade can also be considered as a trade-induced effect caused by economic recessions (e.g., [ 14 – 16 ]) and may also be associated with the impact of COVID-19.

During the current wave of globalization, time lags in synchronizing business cycles between countries are reduced significantly in terms of the intensity of trade relationships [ 17 ]. Find that business cycle synchronization increases when countries trade more with each other [ 18 ]. Show that bilateral trade intensity has a sizeable positive, statistically significant, and robust impact on synchronization. These results are in line with [ 19 ], who finds that greater trade intensity increases business cycle synchronization, especially in country pairs with a free trade agreement and among industrial country pairs. Our paper provides prima facie evidence that this relationship also holds during pandemic-related trade shocks.

We contribute to the literature by integrating monthly data for a trade analysis of 68 countries, 31 of which are classified as high-income. We additionally focus on differential effects between high-income and low- and middle-income countries. This paper aims to shed light on the impact of COVID-19 on exports by means of an integrated approach for a significant number of countries, thereby avoiding an individual analysis of a single country or region that could potentially be affected by idiosyncratic shocks. Given the existence of substantial differences in trade performance and containment measures exhibited by countries and trade partners and attributable in part to their income, we also study whether the impact of COVID-19 on trade differs in terms of income levels. To the best of our knowledge, both questions, the integrated impact of confinement measures and the income related effects, remain unexplored in previous studies.

A proper analysis of ex-post trade impacts related to COVID-19 requires a suitable and fruitful methodology. Gravity models can be helpful in achieving this goal, since they have recently started to incorporate monthly trade data into the analyses, albeit with empirical evidence that is still scarce and far from conclusive [ 8 , 20 , 21 ]. At the same time, several methodological issues need to be resolved adequately when using gravity models [ 22 ]. Resorting to monthly data may pose several advantages in terms of accomplishing our research goals and exploiting the explanatory power exhibited by gravity models and monthly country confinement measures. First, the data reflect monthly variations and allow us to better capture any differential effects arising across countries. Second, annual trade data do not capture the short-run impact of shocks that occur very rapidly, something which a monthly time span can achieve. Monthly data can pick up any rapid movements associated with COVID-19 measures and allow for differential shocks in relation to months and countries. This is particularly relevant given the growing importance of nowcasting and short-term analysis techniques required nowadays for an understanding of world economy dynamics. Finally, monthly data can explain the relative importance of demand and supply shocks during the course of the trade crisis.

We collect monthly trade data for 68 countries ( S1 Table ), which exported to 222 destinations between January 2019 and October 2020. Using state-of-the-art estimation techniques for trade-related gravity models, our results are threefold. First, we reveal a negative impact of COVID-19 on trade that holds across specifications. Second, we obtain results that do not vary substantially when considering different governmental measures. Finally, our results show that the greatest negative COVID-19 impact occurs for exports within groups (high-income countries and low-middle-income countries), but not between groups. These findings are robust to different tests resulting from the introduction of lagging explanatory variables, alternative trade flows (exports vs imports as the dependent variable) or COVID-19 impact measures (independent variables such as stringency index or the number of reported deaths per million population).

Literature review on COVID-19 and trade

The specific literature covering the COVID-19 induced effects on trade can be catalogued as flourishing and burgeoning, but also as incipient and inconclusive at the current time. Some studies have addressed the impact of the health-related crisis on trade. The first strand of literature analyses the effects of previous pandemics by emphasizing asymmetric impacts across sectors. Using the quarterly transaction-level trade data of all Chinese firms in 2003 [ 3 ], estimate the effects of the first SARS pandemic on trade in that year. They find that (i) Chinese regions with a local transmission of SARS experienced a lower decline in trade margins, and (ii) the trade of more skilled and capital-intensive products was less affected by the pandemic.

Despite data being scarce, other studies focus on the current COVID-19 trade shock but are usually restricted to specific countries. For the case of Switzerland [ 23 ], combine weekly and monthly trade data, for the lockdown between mid-March and the end of July. They use goods information disaggregated by product and trade partner. They find that: (i) During lockdown Swiss trade fell 11% compared to the same period of 2019, and this trade shock proved more profound than the previous trade shock in 2009, (ii) contraction in Swiss exports seems to be correlated with the number of COVID-19 cases in importing countries, but at the same time, Swiss imports are related to the stringency of government measures in the exporter country (iii) for the case of products, only pharmaceutical and chemical products remained resilient to the trade shock and (iv) the pandemic negatively affected the demand and supply sides of foreign trade [ 24 ]. Use a gravity model and focus on exports from China for the period January 2019 to December 2020. They find a negative effect of COVID-19 on trade, but said effect is largely attenuated for medical goods and products that entail working from home.

For the case of Spain [ 10 ], find that for the period between January and July 2020, stringency in containment measures at the destination countries decreased Spanish exports, while imports did not succumb to such a sharp decline. Finally [ 25 ], extends the discussion of the Spanish case to analyse the impact of COVID-19 on trade in goods and services, corroborating the existence of a negative effect. He finds a more pronounced decline for trade in services, due to the importance of tourism in the Spanish economy.

Other studies have provided additional evidence by considering a larger sample of countries. Using monthly bilateral trade data of EU member states covering the period from June 2015 to May 2020 [ 20 ], use a gravity model framework to highlight the role of chain forward linkages for the transmission of Covid-19 demand shocks. They explain that when the pandemic spread and more prominent measures were taken, not only did demand decrease further, but labour supply shortage and production halted [ 21 ]. Find a negative impact of COVID-19 on trade growth for a sample of 28 countries and their most relevant trade partners. Their findings suggest that COVID-19 has affected sectoral trade growth negatively by decreasing countries’ participations in Global Value Chains from the beginning of the pandemic to June 2020 [ 26 ]. Analyse the impact of COVID-19 on trade for a larger sample of countries, focusing on export flows for 35 reporting countries and 250 partner countries between January and August in both 2019 and 2020. However, they restrict, their study exclusively to trade in medical goods and find that an increase in COVID-19 stringency leads to lower exports of medical products. Finally [ 27 ], use maritime trade shipping data from January to June 2020 for different countries, such as Australia, China, Germany, Malaysia, New Zealand, South Africa, United States, United Kingdom, and Vietnam. By applying the automatic identification system methodology to observational data, they obtain pronounced declines in trade, albeit the effect is different for each country.

Surprisingly, little attention has been paid to the impacts of COVID-19 on trade for different country income levels and we find several reasons to consider this issue as important. First, the role of trade costs is important, as the latter are related to economic policy and direct policy instruments (e.g., tariffs) are less relevant compared to other components [ 28 ]. According to [ 29 ], differences are expected in trade between high-,low- and middle-income countries due to the composition of trade costs: information, transport, and transaction costs seem to be more important for trade between high-income countries, while trade policy and regulatory differences better explain trade between low- and middle-income countries. The second reason is related to the composition of products, given that average skills in making a product are more intensive in high-income countries resulting in increasing complexity of the products traded compared to low- and middle-income countries [ 30 ]. Accordingly, specific product categories incorporate more embedded knowledge and their production may require engaging in a global production network with multiple countries. However, it has been alleged that participation of countries in global value chains depends on their income levels due to the objectives pursued: high-income countries focus on achieving growth and sustainability, while low- and middle-income countries seek to attract foreign direct investment and increase their economic upgrading [ 31 ]. Third, it is found that low-income countries present a lower share of jobs that can be done at home [ 32 ], rendering them more sensitive to lockdowns that affect services. Finally, due to the paucity of health supplies to mitigate COVID-19, as certain healthcare commodities may not be affordable for certain low-income countries [ 33 ]. Consequently, the effect of COVID-19 on the global economy may be more pronounced for those countries with fewer healthcare resources and impacts on trade do not constitute an exception.

Due to the reasons mentioned above, we expect different countries’ responses to trade shocks induced by COVID-19 depending on their income levels, but this issue remains largely unexplored by the academic literature. The only exception is [ 34 ], but they reduce their analysis to COVID-19 impacts on trade concerning Commonwealth countries. Using the period from January 2019 to November 2020, they find ambivalent evidence: an increase in the number of COVID-19 cases in low-income countries reduced Commonwealth exports, but an identical scenario in high-income countries boosted their export flows.

All these findings are summarized as follows. In Table 1 , we present a compilation of studies using monthly data that feature the impact of COVID-19 on trade.

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https://doi.org/10.1371/journal.pone.0258356.t001

It is also worth noting that the main shock started in March 2020, when most countries closed their borders and implemented lockdown measures. Accordingly, further analysis of COVID-19 impacts on trade requires periods with high frequency, such as monthly data, in order to deliver satisfactory results. Apart from the aforementioned studies in the context of COVID-19 research, to the best of our knowledge, monthly data are scarcely used in gravity models. They have been used either in the context of trade preferences [ 35 , 36 ] or, more recently, to study the impact of natural disasters on trade [ 8 ].

Additionally, we aim to provide evidence concerning the COVID-19 effects on trade at country level, without restricting our research to either specific countries or territories, or, specific trade flows, such as intermediate goods. Since the COVID-19 crisis is still ongoing, it is also necessary to incorporate the most recent and updated time spans to provide policy recommendations aligned with the business cycle. We intend to analyse whether COVID-19 impacts on trade have affected the world economy from a global perspective. This analysis will allow us to distinguish different impacts in terms of levels of economic development, which to the best of our knowledge, remain largely unexplored by the academic literature.

Empirical analysis

This section is organized into three separate sub-sections. First, we describe the empirical model and the estimation strategy. Second, we report information on data issues. Finally, we cover country policy responses to COVID-19.

Model description and estimation strategy

For the purpose of accomplishing our research objectives, we resort to a bilateral trade gravity model, which has progressively become the reference methodology for analysing the causal impacts of specific variables on trade (e.g., [ 22 , 37 – 40 ]; among other scholars).

Where subscripts i , j and m refer to exporter and importer country and month, respectively. COVID m is a control variable that takes value 1 for a COVID-19 trade shock, after March 2020, and 0 otherwise. DIST ij is the geographical distance between exporter and importer country. CONTIG ij is a control variable that takes value 1 when exporter and importer country are adjacent and 0 otherwise. COMLANG ij is a control variable that takes value 1 when exporter and importer country share a common language and 0 otherwise. COLONY ij is a control variable that takes value 1 when exporter and importer country share past colonial linkages and 0 otherwise. RTA ij is a control variable that takes value 1 when exporter and importer country have a regional trade agreement in force and 0 otherwise. In addition to these explanatory variables, we also consider other control variables to capture omitted factors. φ im and γ jm are exporter-month and importer-month fixed effects, respectively. Finally, ε ijm stands for the error term.

The logic behind including these variables is found in the literature, and the explanation is provided as follows: COVID-19-related variables are introduced to estimate the impact of the current COVID-19-shock on trade, since it is expected to be detrimental (e.g., [ 3 , 23 ]). Governmental actions are expected to reduce the duration and magnitude of COVID-19 shock by facilitating a smoother transition to a post-pandemic scenario while generating an economic downturn in the short-run due to the limitations of economic activity and the increase in government expenditure. Adjacency and distance relate to the geographical impacts on trade, given the great influence exerted by geography on trade patterns [ 43 ]. Adjacency is included due to the existence of a border effect, where countries tend to concentrate their trade flows with nearby trade partners [ 41 , 44 ], so that higher adjacency leads to increasing trade flows. The reasons to include distance in gravity models stem from the early contributions [ 45 ]. Countries prefer to trade with less distant trade partners, so that a negative coefficient is expected. Colonial linkages and common language respond to the flourishing literature on the impact of institutions on trade, where the latter play a key role in reducing trade costs and facilitating trade (e.g., [ 46 , 47 ]; among others). Finally, regional trade agreements have multiplied exponentially in the context of globalization and trade liberalization, so that they contribute to decreasing trade costs and enhancing trade [ 48 , 49 ].

Exporter-month and importer-month fixed effects are included to comply with multilateral resistance terms (MRTs), which are related to third-country impacts on the bilateral relationship. They are considered as a pivotal element of modern gravity equations [ 41 ]. According to the structural gravity literature, the omission of such aforementioned MRTs is expected to lead to inconsistent and biased outcomes [ 22 ].

Concerning the previous gravity specification, it is important to highlight that our baseline gravity Eq ( 1 ) does not contain GDP, which is considered a fundamental variable in the seminal gravity models because it measures country size [ 45 ]. The omission of GDP is intentional due to several reasons: (i) GDP variables tend to vary quarterly or yearly and (ii) the inclusion of exporter-month and importer-month fixed effects are perfectly collinear with GDP, so that these control variables will capture its effects on trade.

Eq ( 2 ) introduces some novelties in relation to the previous Eq ( 1 ). First, by interacting the COVID-19 variable with the control variable for regional trade agreements we can compute the impact of COVID-19 on trade by assuming that countries with regional trade agreements affect this empirical relationship. Thus we assess whether COVID-19 impacts on trade are more (less) profound for these countries with (without) previous regional trade agreements. We sum 1 to the variable before taking the logs to avoid losing the observations before the COVID started. This strategy responds to the strands of literature that acknowledge the role of international trade as a driver of business cycle synchronization (e.g., [ 51 , 52 ]) and, more specifically, that regional trade agreements may be behind the transmission of shocks across countries (e.g., [ 19 , 53 , 54 ]). In particular, we follow [ 26 ] approach since the interaction between COVID-19 variables and regional trade agreements allows us to study the heterogeneous impacts of COVID-19 on trade by bringing economic linkages into the discussion.

Another advantage is that interacting an explanatory variable with a control variable may also relieve us from endogeneity issues, as shown by [ 55 ]. In particular, COVID-19 impacts on trade may be driven by omitted variable bias. However, this comes at the cost of not interpreting exporter and importer impacts simultaneously, as both coefficients become symmetric and only one of them can be interpreted, as shown by [ 56 ] and [ 57 ] when studying the impact of institutions on trade using gravity equations at country and regional level, respectively.

Eq ( 2 ) also considers a third set of fixed effects, which are exporter-importer pair effects denoted by η ij . Considering pair effects in the gravity equation as an explanatory variable may pose the advantage of mitigating the estimation from endogenous impacts induced by time-invariant determinants (e.g., [ 58 , 59 ]) and hence may improve the empirical specification. Three-way fixed effects, constituted by pair, exporter-month and importer-month fixed effects, have become the spotlight in gravity specifications assessing the impact of natural disasters on trade, even for those scholars using monthly data, such as [ 8 ].

Finally, we acknowledge that the simultaneous inclusion of such three-way fixed effects, requires large amounts of data in order to carry out the estimation procedure. For this reason, sophisticated PPML estimation commands have recently been developed for gravity equation estimations, so that they can include a high number of dimensional fixed effects and run relatively fast in contrast to previous existing commands [ 60 , 61 ].

Our sample covers a set of 68 countries exporting across 222 destinations, between January 2019 and October 2020 with 31 of these exporters classified as high-income countries. Due to the specific monthly nature of COVID-19 shock, we rely on monthly bilateral trade flows gathered from UN Comtrade. Trade data were extracted on the 15 of February 2021, using the UN Comtrade Bulk Download service. According to the degree of availability of monthly trade flows for countries, our analysis covers aggregate trade flows. For those observations with missing trade flows, we conveniently follow previous studies that suggest that missing trade flows can be completed with zeros, [ 50 , 62 ].

Variables related to the COVID-19 government response have been taken from the systematic dataset of policy measures elaborated by the Blavatnik School of Government at Oxford University [ 63 ]. These indices refer to government response, health measures, stringency, and economic measures. Their composition and implications are described more broadly in the following sections.

The rest of the variables, institutional and geographical, are gathered from the Centre d’Études Prospectives et d’Informations Internationales (CEPII) Gravity database [ 64 ]. S1 and S2 Tables show the list of countries and the main descriptive statistics, respectively.

Policy responses to COVID-19: equal or unequal?

Once COVID-19 spread across a significant number of countries, they were urged to implement policy actions of response. For this reason, several indicators were built to measuring countries´ governmental response to COVID-19. As mentioned previously, the set of policy indicators developed by [ 63 ] constitutes the most noteworthy approach for measuring countries´ policy responses. The four indicators are described as follows:

• Stringency index (upper left chart, Fig 1 ) contains the degree of lockdown policies to control the pandemic via restricting people´s social outcomes. The index is built using data on the closure in education (schools and universities), public transport and workspaces, the cancellation of public events, limits on gatherings, restrictions in internal movements, and orders to confine at home.
• Economic Support index (upper right chart, Fig 1 ) includes measures related to public expenditure, such as income support to people who lose their jobs or cannot work, debt relief to households, fiscal measures, and spending to other countries.
• Containment and Health index (lower left chart, Fig 1 ) combines lockdown measures with health policies, such as the openness of the testing policy to all the population with symptoms or asymptomatic, the extent of the contact tracing, the policy on mandatory use of facial coverings, and monetary investments in healthcare and in vaccines.
• Overall Government Response index (lower right chart, Fig 1 ) collects all governments’ responses to COVID-19 by assessing whether they have become stronger or weaker. This index combines all the variables of the containment and health index and the economic support index.

Source: own elaboration from [ 63 ]. Note: each point represents a country, and the concentration of countries with similar values produces darker areas. Additionally, the mean and 95% confidence bands are represented.

https://doi.org/10.1371/journal.pone.0258356.g001

These indices vary from 0 to 100, with a higher value indicating stronger country measures in response to COVID-19. As these indicators are collected daily, we convert them to monthly averages. The evolution of the four indicators is presented in Fig 1 , where each point represents a country and the concentration of countries with similar values produces darker areas. Additionally, the mean and 95% confidence bands are represented. We pay special attention to differences between high-income and low- and middle-income countries, in line with our research objectives.

Stringency reaches its maximum in April 2020 when the first wave reaches its peak in most countries. Since then, restrictions have been slowly lifted but started to increase again after the summer in high-income countries, coinciding with the beginning of the second wave.

Economic support increased rapidly in March and April and remains stable, with high-income countries granting more economic support to the population than low- and middle-income countries. The economic support variable identifies significant differences between high-income and low- and middle-income countries during the whole period.

The containment and health index and the overall government response index, present a similar pattern regarding income levels. However, we observe that low- and middle-income countries relaxed the measures from April 2021 onwards, whereas high-income countries did so in July 2021. In any case, the countries analysed show significant variability in all the indices, as indicated by the estimates made in the following section.

To sum up, we find that in low- and middle-income countries, pandemic measures have been slightly stricter than in high-income ones, as the values of their COVID-19 policy responses indices are higher for all cases except for the economic support index. The greater availability of resources in high-income countries to control the pandemic explains this difference.

Fig 2 displays the evaluation of total monthly exports in 2020, relative to January 2020, by income level for our sample of exporting countries. We observe the big decline in exports between March and April mentioned previously. In fact, the observed magnitude of trade decline as a consequence of COVID-19 is identical to the previous global recession, but contractions in GDP and trade flows are more profound at the current stage [ 65 ]. However, we observe that high-income countries have gradually been recovering their export flows, revealing a larger degree of resilience and how economic support policies might have helped them in recovering economic activity. In particular, greater firm engagement in trade because of previous global recession may be beneficial, as they have been able to recover in a shorter period of time from this new contraction in GDP due to the openness to foreign markets [ 66 ]. Find that net firm entry in export markets contributed less to export growth during the Great Trade Collapse, between 2008 and 2013, than continuing exporters. Export capacity to foreign markets in order to counteract the negative impact of local demand shocks is illustrated by [ 67 ] for the specific case of Spain.

Source: own elaboration using UN Comtrade trade data.

https://doi.org/10.1371/journal.pone.0258356.g002

We acknowledge that policy responses differ by country, as the impacts of COVID-19 have been strongly unequal for countries due to several reasons. First, countries have reported differences in the number of deaths, mainly attributable to the population composition. There is an increasing number of elder populations in a significant number of high-income OECD countries [ 68 ] and this group is the most vulnerable to COVID-19 (e.g., [ 69 ]).

At the same time, countries have also implemented trade policy actions to mitigate the influence of COVID-19 on the global economy. For the sake of brevity and in line with the aim of the article, we only consider the trade policy response. Readers interested in analyzing a complete set of economic policy responses (i.e., budgetary and/or monetary) to COVID-19 are entitled to check the International Monetary Fund (IMF) Policy Tracker at https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19 .

We focus on the corresponding period coincident with our sample, but further trade policy actions have been implemented after this period because of the increasing number of cases related to COVID-19 in subsequent waves. They can be checked at the IMF Policy Tracker previously reported, which is updated regularly [ 70 ]. Summarizes the major stylized facts during the first nine months of the pandemic. First, there was a noticeable rise in trade policy activism consisting mainly of export controls and import liberalization measures with strong cross-country variation. Second, this activism was reported to vary by country and products, where medical and food products experimented a substantial overall increase in their demand from February 2020. Third, we observe a further trade liberalization process after May 2020, where the number of liberalization measures exceeded the number of trade restrictions in medical products.

Such cross-country variation in trade policy response aligns with our expectations since, as mentioned previously, trade specialization differs by country. Accordingly, their sensitivity to the growing demand for food and medical products may vary substantially. For this reason, some countries were more resilient to COVID-19 trade shocks than other countries, as shown by the decreases observed in their trade flows. To this end, we compare trade drops for the most affected countries relative to January 2020 and their governmental response, from May 2020 to October 2020. As described by [ 70 ], countries experienced a substantial relaxation in most of their trade measures in May 2020.

For the ten countries with the largest trade drop evidence is ambivalent. For the sake of brevity, we have omitted the data concerning each country and provide a general overview. Data is available from the authors upon request to the corresponding author and can be obtained from the UN Comtrade database. On the one hand, four high-income (Macao, Mauritius, Portugal, and Slovakia) and six middle-income countries (El Salvador, Mexico, Montenegro, Guyana, Egypt, and Romania) were among the most affected countries in May 2020, with El Salvador registering the highest level of governmental response. Trade relative to January 2020 ranges from 51 to 69 percent in this period. On the other hand, we find that the number of high-income countries increased to six in October 2020 but, at the same time, differences in governmental response decreased their observed variance. Israel registered the highest level of governmental response during this month. In this case, relative trade ranges from 76 to 102, corroborating the previous finding that countries recovered rapidly from this trade shock. To sum up, despite differences in governmental response due to the impact of COVID-19 by countries, recovery can be alleged to follow similar patterns for the most affected countries.

This section is organized into three separate sub-sections. First, we present a benchmark analysis, and afterwards we show the main results obtained for the four different COVID-19 government policy response indices. Finally, we review whether COVID-19 impacts differ by levels of economic development.

Benchmark analysis

This section reviews four specifications of the gravity equation: Column (I) in Table 2 includes the COVID-19 binary variable without interactions and only including exporter and importer fixed effects. Column (II) departs from Eq ( 2 ) but introduces exporter-month and importer-month fixed effects and, finally, column (III) adds pair fixed effects to the specification showed in column (II). For this robustness analysis, we use COVID m variable, which takes value 1 from March 2020, when several countries worldwide implemented lockdown measures, and 0 otherwise.

https://doi.org/10.1371/journal.pone.0258356.t002

The coefficients shown in column (I) may be biased because the specification does not accurately capture those factors related to MRTs and structural gravity. We hence move on to the alternative specification considered in columns (II) and (III), where we choose column (3) because it corresponds to Eq ( 2 ) and solves limitations in the baseline Eq ( 1 ).

Alternative specifications show an unequivocal detrimental effect of COVID-19 shock on trade. While the magnitude of the COVID-19 coefficient in column (I) is larger, -0.204, the size decreases when we move to our baseline specification in column (III), where we interact with the RTA variable, with an estimated coefficient of -0.050 when we include pair fixed-effects. The rest of the variables show the expected coefficients according to the theoretical insights and projections of gravity models.

Results by COVID-19 government policy responses indices

We now estimate our results introducing the four COVID-19 government response indices using Eq ( 2 ), as governments in countries more affected by the pandemic are expected to response with stringency, health, and economic support measures. Table 3 shows that the effect of COVID-19 on trade is negative and significant for all the variables considered. We agree with the existing literature on the negative impact of COVID-19 on trade (e.g. [ 21 , 23 ]); and also with the negative impact of previous pandemics [ 3 ]. We also find that results do not vary substantially across indices related to COVID-19, as they range between -0.009, for containment and health measures, and -0.012 for economic support. Although estimated parameters are not statistically different from each other, this might indicate that countries demanding more support to boost their economies have been the most affected ones by the COVID-19 trade shock. We also test our results using the traditional variable of COVID-19 reported deaths per million population as impact measure of the pandemic by country. Results, available under request, show no relevant variation to those presented in the article, which might be considered as an additional robustness test of the results presented.

https://doi.org/10.1371/journal.pone.0258356.t003

Our results suggest that COVID-19 may be detrimental to trade flows for those countries engaged in previous regional trade agreements compared to the countries that were not members of these agreements, as shown by the result of interacting these variables. However, interaction terms fail to reflect that those countries not participating in regional trade agreements were not affected by COVID-19, given the large set of existing possibilities of trade integration between countries. Furthermore, these countries could have been expanding their trade flows via preferential trade agreements, which are less restrictive than regional trade agreements.

Although the estimated elasticity may mistakenly appear low, it reflects a large elasticity of trade to COVID-19, given the observed change in the four indicators under consideration. For instance, the overall government response indicator increases, on average, from 3.16 to 70.09 from February to April 2020. This change corresponded to a 2,155% increase in the government response indicator that, multiplied by the estimated elasticity of -0.010, results in a sharp decrease in export flows of around 21%. The explanation may be twofold. On the one hand, the COVID-19 trade shock may be expected to be less dampening for the economy in comparison to the trade shock induced by the global financial crisis [ 23 ], as we highlighted previously. On the other hand, the COVID-19 trade shock is still ongoing and it may be necessary to include results for the second wave commencing September 2020.

We include two additional robustness tests. First, in S3 Table we show our results with lagged independent variables, in order to check whether there exist non-contemporary impacts of COVID-19 on trade. Our results show that the estimated coefficients remain significant and with greater values than those presented in Table 3 . Second, in S4 Table we consider the estimations for import trade flows as the dependent variable. The reason for including imports responds to [ 71 ] suggestion of using mirrored datasets, given that import trade flows are more subject to trade barriers than exports. In contrast to import trade regimes, most export trade regimes tend to be free and do not require additional documents or licenses to trade the goods. Results remain invariant in relation to those presented in Table 3 and S3 Table .

Results by levels of economic development

Finally, we complement the results by analysing whether COVID-19 impacts on trade depend on the levels of economic development of exporter and importer countries, distinguishing between high, low and middle-income importers, we follow the last version of the World Bank´s classification. These results are shown in Table 4 , where each cell contains the estimated coefficient and robust standard error for a different estimation of the COVID-19 government response indicators in a PPML regression that includes exporter-month, importer-month, and pair fixed effects. For instance, column (I) presents results for trade between high income countries, where the first row shows the estimated parameter for our reference equation, in line with column (4) in Table 1 . The following four rows correspond to the estimated parameters in Table 2 for COVID-19 related variables. Results with lagged independent variables, presented in S5 Table , show that estimated coefficients remain statistically significant and higher than those presented in Table 3 .

https://doi.org/10.1371/journal.pone.0258356.t004

We find that the COVID-19 effect on trade remains negative, but it seems to be inversely related to the income levels of the importer country. While the COVID-2019 dummy variable registers the highest negative impact, -0.103 for exports between high-income countries, (see column (I)), it is -0.055 between low-and middle-income countries, (see column (II)). The greater effect of the pandemic among integrated countries is in line with the results obtained by [ 20 ]. The effect found by [ 34 ] is the opposite, as COVID-19 in high-income countries spurs Commonwealth countries´ trade. However, their analysis focuses on a selected group of countries and distinguishes product categories so that the greater demand for medical products during the pandemic can explain these results. This fact reinforces the importance of including many countries in the sample since we can expect substantial differences in cross-country variation. We also find no significant effect of COVID-19 on the trade from exports of high-income to low-income countries in column (III) and a positive effect of exports from low-income to high-income in column (IV). These results remain similar when using lagged independent variables, presented in S5 Table . As robustness tests we include in S6 Table estimations for import trade flows. Results also remain invariant in relation to those presented in S3 Table .

These differences, within similar income groups and between groups, could be explained by the following. It is expected that countries more integrated into global supply chains and with greater business cycle synchronization are the most affected by trade collapse. We find that the existence of cross-country differences in capabilities is relevant since they determine countries’ comparative advantage [ 72 ]. In this context, high-income countries tend to be associated with exports of high-quality goods since they charge higher prices [ 73 ] and require larger amounts of skills to produce these goods [ 74 ]. Hence, the set of products exported between high-income countries may be related to goods with a higher degree of economic complexity, which exhibit a greater degree of resilience to economic shocks. This difference may also be explained by the higher demand for medical products by high-income countries, since the first COVID-19 wave starting in February 2020 reached this group of countries first.

We find a marginally significant positive effect for exports from low- and middle-income countries to high-income countries. This shows that countries belonging to this income group might have found an opportunity to supply the high-income countries’ markets, with whom they have regional trade agreements, these proving most affected by COVID-19 during the months in our sample. Low and middle-income countries are indeed progressively increasing their gains from trade because of greater exposure to globalization [ 75 ]; and this growth of trade flows from low and middle- income countries to high-income countries corroborates this evidence. Finally, not all kinds of products have been affected in the same magnitude. Evidence for outdoor goods can be found in [ 76 ]. Domestic consumption products, such as food, had a better performance during the pandemic, and low-income countries specializing in exporting these sorts of goods to high-income countries might have increased their exports to high -income countries.

Conclusions

In this study, we shed light on how the current COVID-19 crisis affects trade flows for the world economy during the first wave of the pandemic. We apply a PPML estimator with three sets of fixed effects in consistency with the recent literature on gravity models. Using monthly trade data for a sample of 68 countries, we find a negative impact of COVID-19 on trade flows that it is greater for countries with RTA. In addition, we also find a negative impact for a set of four indicators related to government responses against COVID-19, although a substantial variation in the impact on trade of the different measures is not observable. Furthermore, our results show that the COVID impacts on trade are only negative when income levels for exporter and importer country with regional trade agreements are identical, and in particular for high-income level countries.

These results pose important policy recommendations. The current trade shock induced by COVID-19 is still reshaping the world economy at the moment of writing these lines. However, current effects on trade can be considered as less detrimental than in the first wave from March to May 2020. The reason is contingent on countries’ capacity of adaptation to the different stages of the crisis. Countries may need to mitigate this trade shock by implementing public expenditure programs, as well as encouraging private investment. Such governmental actions may require further institutional initiatives, given the importance of the latter’s sizeable effects on trade flows (e.g., [ 47 ]). Nevertheless, countrywide attention has currently shifted towards vaccines, which may determine the future formulation of policies which concentrate vaccines on a small group of producers [ 77 ]. The transition to a non-COVID-19 context is expected to depend strongly on the vaccination efforts that are being undertaken by most countries. It is fundamental for countries to remain competitive throughout the course of the COVID-19 pandemic, simultaneously rebuilding wherever possible their trade relationships.

Finally, this manuscript presents certain limitations and avenues that must be taken into consideration for future research. First, the current study only offers a preliminary impact of COVID-19 on trade, as the shock is currently ongoing. The final magnitude of the shock may be assessed once it is over. Second, we only consider aggregate trade and the impact of COVID-19 on trade may depend on the sectoral comparative advantage of each country, as shown by the previous literature [ 23 ]. Hence, we may use trade data disaggregated by sectors, although we acknowledge that sectoral trade data availability is less forthcoming than its aggregate counterpart. Third, the existence of a subset of COVID-19 stringency indicators although highly correlated with the stringency index used in this article, may be capturing measures in very specific areas.

The analysis may also be extended to services trade flows in line with [ 25 ] approach. It would also be convenient to replicate these results for the subnational level. Despite recent efforts to estimate inter and intraregional trade flows in specific areas or territories, such as the European Union [ 78 ], this data is elaborated with a considerable time lag much larger than that for country data, and such analysis is not expected to be possible in the near future. Finally, it is necessary to acknowledge the importance of firms as international trade actors since there are substantial productivity differences across exporters. For this reason, it would be convenient to extend these findings to the firm level, as studied by [ 79 ] for Colombian firms.

Supporting information

S1 table. list of exporting countries..

High-income countries in bold.

https://doi.org/10.1371/journal.pone.0258356.s001

S2 Table. Main descriptive statistics.

https://doi.org/10.1371/journal.pone.0258356.s002

S3 Table. Results with one lag of COVID-19 government response indicators estimated by PPML, January 2019–October 2020.

Dependent variable is trade flows. Robust standard errors in parentheses, such as *** p<0.01, ** p<0.05, * p<0.1. All the specifications include exporter-month, importer-month and pair fixed effects.

https://doi.org/10.1371/journal.pone.0258356.s003

S4 Table. Robustness: Imports, M. Results by COVID-19 government response indicator estimated by PPML, January 2019–October 2020.

Robust standard errors in parentheses, such as *** p<0.01, ** p<0.05, * p<0.1. All the specifications include exporter-month, importer-month and pair fixed effects.

https://doi.org/10.1371/journal.pone.0258356.s004

S5 Table. One lag of COVID-19 government response indicator.

Results by income levels. Estimated by PPML, January 2019–October 2020. Dependent variable is exports. Robust standard errors in parentheses, such as *** p<0.01, ** p<0.05, * p<0.1. Each COVID-19 indicator is estimated on a different regression but paired in the same column for the sake of brevity. All the specifications include exporter-month, importer-month and pair fixed effects.

https://doi.org/10.1371/journal.pone.0258356.s005

S6 Table. Robustness: Imports, M. Results by income levels and COVID-19 indicators estimated by PPML, January 2019-October 2020.

Dependent variable is imports. Robust standard errors in parentheses, such as *** p<0.01, ** p<0.05, * p<0.1. Each COVID-19 indicator is estimated on a different regression but paired in the same column for the sake of brevity. All the specifications include exporter-month, importer-month and pair fixed effects.

https://doi.org/10.1371/journal.pone.0258356.s006

Acknowledgments

We thank two anonymous reviewers for their useful comments, which have contributed to improving the quality of the manuscript. Comments received from attendants of XXII Conference on International Economics and XXIII Applied Economics Meetings are also gratefully acknowledged. The views expressed are purely those of the authors and cannot under any circumstances be regarded as stating an official position on the part of the European Commission.

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Socio-Economic Impacts of COVID-19 on Household Consumption and Poverty

• Original Paper
• Published: 23 July 2020
• Volume 4 , pages 453–479, ( 2020 )

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• Amory Martin   ORCID: orcid.org/0000-0003-2372-2287 1 ,
• Maryia Markhvida 1 ,
• Stéphane Hallegatte 2 &
• Brian Walsh 2  

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The COVID-19 pandemic has caused a massive economic shock across the world due to business interruptions and shutdowns from social-distancing measures. To evaluate the socio-economic impact of COVID-19 on individuals, a micro-economic model is developed to estimate the direct impact of distancing on household income, savings, consumption, and poverty. The model assumes two periods: a crisis period during which some individuals experience a drop in income and can use their savings to maintain consumption; and a recovery period, when households save to replenish their depleted savings to pre-crisis level. The San Francisco Bay Area is used as a case study, and the impacts of a lockdown are quantified, accounting for the effects of unemployment insurance (UI) and the CARES Act federal stimulus. Assuming a shelter-in-place period of three months, the poverty rate would temporarily increase from 17.1% to 25.9% in the Bay Area in the absence of social protection, and the lowest income earners would suffer the most in relative terms. If fully implemented, the combination of UI and CARES could keep the increase in poverty close to zero, and reduce the average recovery time, for individuals who suffer an income loss, from 11.8 to 6.7 months. However, the severity of the economic impact is spatially heterogeneous, and certain communities are more affected than the average and could take more than a year to recover. Overall, this model is a first step in quantifying the household-level impacts of COVID-19 at a regional scale. This study can be extended to explore the impact of indirect macroeconomic effects, the role of uncertainty in households’ decision-making and the potential effect of simultaneous exogenous shocks (e.g., natural disasters).

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Introduction

COVID-19 has led to severe and acute losses in many economies around the world due to illness and and government-mandated social distancing orders. The impact and duration of the economic crisis on individual households, resulting from the pandemic, is difficult to predict as many uncertainties surround the crisis duration, i.e. length of “stay-at-home” orders, as well as impacted industries and the post-crisis consumption and recovery.

There is a plethora of ongoing research studies on estimating the economic impact of COVID-19, in both emerging and developed countries. Due to widespread business closures, especially in lower income populations, national economies are expected to contract, leading to a dramatic rise in unemployment and poverty rates. A report from the World Bank estimated that 11 million people could fall into poverty across East Asia and the Pacific (World Bank 2020 ). Analyzing the effect of the pandemic on poor communities across four continents, (Buheji et al. 2020 ) estimates that 49 million individuals will be driven into extreme poverty in 2020 (living on less than $1.90 per day).

The U.S. economy, where gross domestic product (GDP) fell by 4.8% in the first quarter, is projected to fall into recession in 2020, with a contraction of 5.0% in a likely scenario (McKibbin and Fernando 2020 ; Fernandes 2020 ). The European Commission estimates that the euro area economy would decline by 7.25% in 2020, with all countries expected to fall into a recession (European Commission 2020 ). Developing countries in South-East Asia are also vulnerable to the global economic disruption of the pandemic due to decrease in trade, foreign investment and tourism. According to the International Monetary Fund (IMF), the ASEAN-5, which consists of Indonesia, Malaysia, Philippines, Thailand, and Vietnam is predicted to decline by 0.6% in 2020 (International Monetary Fund 2020 ). Reduction in remittances from high-income countries to low- and middle-income countries is likely to have a significant impacts in many countries, such as Nepal or the Philippines, where remittances represent a large share of many households’ income.

In the six week span of March 15 to April 25, a record 30.2 Americans have filed for unemployment benefits as first-time claimants, according to the U.S. Department of Labor. The unemployment rate in the U.S. hit a staggering 14.7% officially in April from statistics released by the U.S. Bureau of Labor Statistics and some predictions estimate even higher unemployment rates, above 20%, (Bick and Blandin 2020 ).

According to the Pew Research Center, the highest risks of layoffs are in the accommodations, retail trade, transportation services and arts entertainment and recreation services sector(Kochhar and Barroso 2020 ). Additionally, among the sectors that lost the most jobs in March are the leisure and hospitality and health and educational services (Burns 2020 ). Using a variable vector autoregression model based on data from recent disasters, (Ludvigson et al. 2020 ) estimates a cumulative loss of 24 million jobs in the U.S. over the course of 10 months, largely due to a 17% loss in service sector employment. Only 37% of jobs in the U.S. can be performed at home, and many lower-income countries have a lower share of jobs that can be performed remotely (Dingel and Neiman 2020 ). Consumer discretionary spending is in free fall as non-essential businesses are closed and individuals are saving more. Analyzing data from a personal finance website, (Baker et al. 2020 ) found that consumer spending in the United States is highly dependent on the severity of the disease’s outbreak in the state and the strength of the local government’s response.

Although ongoing research is assessing the economic ramifications of COVID-19, most of these studies are focused on the macroeconomic and financial impact of the coronavirus. Impact on national economies are then translated into socio-economic impact on individuals, including consumption and poverty rates (top-down approach). The goal of this study is to analyze the socio-economic impacts of the COVID-19 containment at the household level (bottom-up approach). While this approach is not expected to replace macro-level analyses that can better capture the interaction across sectors and countries or the effect of macroeconomic aggregated, it can complement it by providing much finer estimates of the distributional impacts. It can also better account for households’ coping capacity, the role of people’s savings, and the higher resilience of multi-job households.

To understand the impacts of the loss of revenue on the lower income level populations, a household well-being formulation is adopted following the work of (Hallegatte et al. 2016 ). The original household well-being model was developed for the disaster impact of an earthquake, and applied to the Bay Area in California (Markhvida et al. 2020 ). In addition, the household model has also been applied to estimate household-level resilience to natural disasters in Fiji, the Philippines, and Sri Lanka (Walsh and Hallegatte 2018 ; 2019 ; 2020 ). While natural disasters predominantly affect the capital stock (e.g. buildings, infrastructure) of an economy, here the economic impact of COVID-19 is represented as an income shock, based on a distribution of income loss by industry sector, during a pre-defined crisis period representing the shelter-in-place order.

The health impacts, due to illness, mortality or indirect effects on the workforce are not modeled and are beyond the scope of this study. The number of cases, Susceptible-Infected-Recovered (SIR) dynamic model or other epidemiological model are not included in this study. The direct economic impact of the coronavirus on household consumption, savings and recovery time is analyzed, as well as changes poverty rates and geospatial inequality distributions, with different assumptions regarding the social protection system. The long-term intertemporal effects of consumption, savings and income are neglected since many uncertainties surround the pandemic, lockdown and subsequent recovery at the time of this study. Since California has been affected early and high-frequency data on the situation of households are available in the U.S., the Bay Area is a good case study to develop and validate the model, which we then plan to apply in other countries and regions.

Methodology, Modeling and Optimization

Using census tract data, a household-level economic model is built, divided into two periods: (1) crisis period, which simulates the duration of the shelter-in-place order and subsequent loss of income and (2) the recovery period. During the crisis period, affected individuals will suffer an income loss, based on their industry sector, and use savings to replenish consumption. The income shock is assumed to begin on the first day of the crisis and last until full economic reopening. During recovery, income is assumed to be fully replenished to pre-crisis levels and savings are replenished using a marginal savings rate of 10%. A household recovery time is defined as the time it will take to fully replenish its savings to pre-crisis levels. Unemployment insurance, from state and federal levels, replenish consumption.

Income, Consumption and Savings

The initial pre-disaster income, i o , is:

where \({i}_{o}^{L}, {i}_{o}^{oth}\) and \({i}_{o}^{h}\) are the initial pre-disaster incomes from labor, investments and housing respectively Footnote 1 , \(k_{o}^{oth}\) and \({k_{o}^{h}}\) are capital stocks for investments and housing respectively and π is the US average productivity of capital. The total income as a function of time, i ( t ), is defined as follows:

where Δ i L ( t ) is the labor income loss over time due to the crisis and i U I ( t ) is unemployment insurance income from both federal and state assistance. The initial pre-disaster household consumption, c o is:

where \({p}_{o}^{rent}\) and \({p}_{o}^{mort}\) are the rent and mortgage payments Footnote 2 .

Initially, households have savings S o representing current liquid assets, which they can use to smooth consumption in case of income shock. It is assumed that the containment phase last for a duration T C . After this period, incomes can get back to their pre-crisis level, and there is a recovery period of duration T R during which households rebuild their savings or current liquid assets.

As a first exploration, this study assumes that there is no macroeconomic-level impact of the crisis: the only impact is a decline in the income of some households, either because they cannot work remotely or because demand has collapsed in their sector. People who are not directly affected through a drop in revenue or loss of job are assumed that have an unchanged income. These assumptions are acceptable over the short-term, but will be increasingly optimistic as the duration of the containment last. Over the longer-term, one can expect all workers and firms to be affected as the impact of reduced incomes propagate through the economic system. These second-round effects will be explored in a second phase.

During the crisis and recovery period, households use and then rebuild their savings and the consumption as a function of time, c ( t ), is as follows:

where S o and S f and the initial and final savings respectively, T C and T R are the duration of crisis and recovery respectively. The adjusted consumption is the following:

where c m i n = 1 e − 3 represents the survival level of consumption, assuming people always have access to humanitarian assistance (e.g., food banks).

Finally, the household savings as a function of time, S ( t ), are:

where t is the time, which is initialized at the start of the crisis t o = 0, and other terms are defined previously. The recovery time is based on an exogenous ability to save, assumed constant for all households:

where γ is the saving rate during recovery, until savings are back to their pre-crisis level (here we will assume γ = 0.10).

The model, with household consumption and savings time series, is shown in Fig.  1 .

Household consumption and savings model with crisis and recovery periods. Highlighted zones indicate federal assistance and state unemployment insurance

Utility Functions and Household Well-Being

We assume people derive an utility from consumption, u ( t ), and from savings, v ( t ): Footnote 3

where η is the elasticity of the marginal utility of consumption, α and β represent statistically calibrated parameters for utility of savings (Appendix  A.2 ).

The household well-being, W , is the sum of the household well-beings during crisis, W C and recovery phases, W R :

where the household consumption c C , c R and savings S C , S R for the crisis and recovery periods are detailed previously in equations, and ρ is the utility discount rate, assumed to be 10%. The utility discount rate influences household behavior (i.e. how they use savings). However, preliminary tests, in which ρ is varied in both crisis and recovery periods, reveals that the parameter has little influence on the results. This is because the crisis period is too short to make discounting a major factor. The household well-being losses, Δ W , are defined as follows:

where W o is the initial well-being defined as follows:

The utility at the minimum level of consumption c m i n provides a lower bound for people’s utility. Even with no income nor savings, individuals are assumed to have access to a minimum level of consumption, thanks to the “humanitarian” response (e.g. food banks, help from neighbors). This creates a lower bound for consumption and thus well-being. Note that this model does not include mortality and morbidity, either due to COVID-19 or to health impacts from containment, such as under- and malnutrition due to insufficient income, mental health implications from isolation, or indirect health consequences from reduced access to health care (especially for people with chronic disease).

Optimization Formulation

In this study, we will assume that households will deplete their savings to smooth consumption over time, in order to maximize their well-being. There are not using all their liquid assets, because other shock may affect them during or after the COVID-19 crisis, so that the utility derived from remaining savings have an increasing value as they are used in the current shock. One important simplification here is that people are assumed to know in advance the duration of the containment phase. In reality, one challenge for households is to decide how to manage their savings in the context of a highly uncertain crisis, both in duration and magnitude. The assumption that the duration is known means that the results from the analysis are conservative, underestimating well-being and poverty consequences from containment. The one-dimensional unconstrained optimization problem is the following:

where S f is the design variable, the savings at the end of the crisis. The optimization problem is sequentially solved for every census tract in the database representing Bay Area households. The optimization problem is convex and attains one global maximum, the proof is given in Appendix  A.1 .

To evaluate the socio-economic impact of COVID-19 on individuals, a micro-economic model is built to estimate the household consumption and well-being. The model is used to quantify the effects of mandatory “shelter-in-place” orders, as well as the effectiveness of social benefits. The San Francisco Bay Area is used as a case study, where impact of the lockdown and the recently passed CARES Act federal stimulus package are evaluated in conjunction with state unemployment insurance (UI) benefits. The model and approach can be easily transferred to other countries and regions, even though differences in the availability of data (e.g., regarding financial savings) may make it necessary to make further approximations in other contexts.

Scope and Data

The Bay Area enacted a shelter-in-place order on March 16, 2020 in six counties: San Francisco, Santa Clara, San Mateo, Marin County, Alemeda County, Contra Costa. Soon after, a mandatory stay-at-home order across California was issued on March 19, 2020. This major business perturbation has led to a sharp rise in unemployment and severe economic repercussions (Schwartz 2020 ). On March 27 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into U.S. law, which among other stimulus measures, extends unemployment benefits and gives single payouts to individuals. The number of reported total cases per county across Bay Area, as well as the daily cases are shown in Fig.  2 .

Bay Area COVID-19 crisis timeline: total reported cases by county (top left) and daily reported cases from The New York Times publicly available Coronavirus (COVID-19) Data in the United States (The New York Times 2020 ) (bottom left) and Bay Area counties (Rissman and Merenlender 2008 ) (right)

For the case study of the Bay Area, the socio-economic impacts of COVID-19 of the following 9 counties are modeled, in alphabetical order, (1) Alameda, (2) Contra Costa, (3) Marin, (4) Napa, (5) San Francisco, (6) San Mateo, (7) Santa Clara, (8) Solona and (9) Sonoma County (Fig.  2 ). The total population of the Bay Area is greater than 7,302,000 inhabitants. The household data is sourced from census tracts information using the SimplyAnalytics platform, which details income, investments, savings, employed and other relevant data for the year 2016 (SimplyAnalytics 2016 ).

Income Shock

An income loss schedule is implemented according to industry sectors to model the shock of the COVID-19 crisis on households from economic impacts related to illness, layoffs and loss of activity due to social distancing orders. The income drop per sector is modeled according to Table  1 using the 15 aggregated industry sectors from the U.S. Bureau of Economic Analysis (BEA). The hardest hit industries are assumed to be construction, retail trade, transportation, arts and entertainment (Leatherby and Gelles 2020 ). Within an industry sector, a fraction of workers is assumed to lose their job, therefore losing 100% of their labor income. These affected individuals lose their labor income during the shelter-in-place order, which in this study is referred to as the crisis period. This fraction depends on the composition of the sector and the ability of those various occupations that can be performed at home.

Although various sectoral income shocks are modeled, a more complete representation and disaggregation of the BEA industry sectors by occupation is possible but left for future studies. In addition, Table  1 can be replaced by more recent employment data, including Current Employment Statistics (CES) from the Bureau of Labor Statistics (BLS), or more regional data from California or the San Francisco Bay Area. However, this is beyond the scope of this study, where the main contribution is translating sector-level vulnerability into poverty implications at a regional scale.

Policy Impacts

To investigate the impacts of policies on per capita consumption and well-being, the following three case studies A, B and C are explicitly considered:

Case A: Base. This is the initial base case, where no unemployment insurance nor stimulus benefit package are considered. In this case, households will smooth their consumption during the crisis by using their savings.

Case B: UI. This is the Unemployment Insurance (UI) case, where the regular California UI benefits are considered. In this case, individuals who lose their job can receive between $40 and $450 per week for a maximum duration of 26 weeks (6 months). According to California Law, an individual can claim UI benefits from a minimum gross income of $900/quarter ($300/month). The maximum UI benefit is capped for an individual earning $11,676/quarter ($3,892/month) or more.

Case C: CARES. This case considers regular California UI benefits in addition to the new CARES Act stimulus package, signed into law on March 27, 2020. Although the Coronavirus Aid, Recovery and Economic Security (CARES) Act contains many programs, two specific aspects are explicitly modeled here:

Unemployment Insurance Extension

Pandemic Emergency Unemployment Compensation. Eligible individuals, who exhaust their regular California state UI benefits, can receive up to an additional 13 weeks (3 months) of UI benefits at the original rate, for a total UI state benefits of 39 weeks (9 months).

Pandemic Unemployment Compensation. Eligible individuals will benefit from an additional $600/week flat rate of UI benefit until July 31 on top of the UI and Pandemic Emergency Unemployment Compensation. This unemployment assistance is a flat rate and does not depend on prior income.

Stimulus Checks The U.S. government is issuing direct payments to most Americans, up to $1,200 through the U.S. Internal Revenue Service (IRS). The stimulus checks are based on annual gross income of the 2018 tax filing year. Individuals earning $75,000 or less per year will receive $1,200. Individuals earning more than $75,000 will receive checks reduced by $50 for every additional $100 above that threshold. Individuals having a gross yearly income over $99,000 will not receive a stimulus check. Couples filing jointly and additional benefits for children dependents under the age of 16 ($500 per dependent child) are not explicitly modeled due to lack of data.

As for all analysis of post-disaster support and social protection impact assessments, it is critical to consider the practical implementation of the measures, and to include in the analysis unavoidable exclusion errors. In this model, the exclusion error is estimated as 40%, which is based on 2019 unemployment insurance rates in California according to the Employment Development Department (EDD) (Appendix  B ). To investigate the importance of implementation of response measures, various assumptions on this parameter are explored. Excluded individuals are assumed not to receive state UI nor CARES due to ineligibility, claim processing errors, exhaustion of UI benefits, or other reasons. Undocumented immigrants, which represent 9.0% of the total labor force in California according to the Pew Research Center (Passel et al. 2016 ), are explicitly modeled and are also expected to receive no state nor federal benefits. The CARES stimulus individual paycheck (up to $1,200) is added directly into savings. The unemployment benefits, from state and federal levels, as well as the stimulus checks are given to individuals with a random time delay representing the delay from the onset of the crisis to the benefits arriving in individual bank accounts. The time delays for each are modeled randomly and independently assuming a lognormal distribution with mean six weeks and standard deviation of three weeks.

Poverty Levels

To investigate the impact of COVID-19 on lower income populations, two poverty levels are considered: (1) poverty, corresponding to the Low Income Level (LIL) defined by the Department of Housing and Urban Development (HUD) and (2) deep poverty, which is defined as half the income of LIL. According to HUD, LIL is defined for household gross annual income less than $25,844, thus, deep poverty is defined for gross annual income less than $12,922. These poverty measures closely match the California Poverty Measure (CPM), developed by the Public Policy Institute of California (Bohn et al. 2019 ). From the census tract data, the poverty rate of the Bay Area is 17.1%, and the deep poverty rate is 1.68%.

Household Consumption and Saving Losses

In this section, the crisis is assumed to last three months, T C = 3, representing a time period starting from the Bay Area shelter-in-place order on March 16, 2020 to a full reopening on June 16, 2020. At the time of writing this report, the California mandated shelter-in-place is to be maintained until at least end of May. However, the order could remain in effect for longer since the daily new cases in the Bay Area is still close to peak levels (Fig.  2 ).

The histograms of initial versus crisis per capita consumption [$/month] and savings [$] for each case (A: base, B: UI and C: CARES) along with the poverty income levels are shown in Fig.  3 . The median Bay Area initial per capita consumption is $3,989 per month. Considering consumption during the crisis period and no unemployment insurance (UI) benefit nor federal assistance, the consumption drops for most individuals, with 643,000 people falling below the poverty level (per capita consumption lower than o $2,154 per month). The California state unemployment insurance (UI) benefits help maintain consumption during the crisis, with CARES (Case C) having a very strong impact on consumption levels during the crisis.

Histograms of per capita consumption and savings, comparing initial pre-crisis and during the crisis period for a case A: base, b case B: unemployment insurance and c case C: unemployment insurance and CARES Act stimulus. The income thresholds for poverty and deep poverty are plotted for comparisons

Considering both unemployment insurance and CARES benefits, the standard deviation of crisis consumption across individuals is reduced. This is represented by the lower tail distribution of Fig.  3c . Indeed, lower income individuals gain more from CARES Act then their job revenue pre-crisis, since the $600/week unemployment benefit is an average and not based on per capita income.

The median per capita savings in the Bay Area, before the crisis is $6,092, which represents 7.0 weeks of pre-crisis consumption. With no benefits (case A), most individuals deplete their savings to smooth consumption, with some individuals fully depleting their savings. For case B, considering UI benefits, the decrease in savings is reduced thanks to California benefits. Finally, the residual savings are much higher with both UI and CARES (case C), since the state and federal benefits are used as alternative cash flows instead of using savings to replenish consumption.

Recovery Time

The histograms of recovery time in months for the affected population (i.e., those who have an income loss due to the COVID-19 crisis) in the Bay Area is shown in Fig.  4 along with the average values. The recovery time is defined as the time needed to replenish savings, which were depleted during the crisis. The crisis period is assumed to last three months.

Histograms of recovery time for affected populations considering a case A: base, b case B: unemployment insurance and c case C: unemployment insurance and CARES Act stimulus

The median and per-quartile recovery times for affected individuals is shown in Table  2 . The average recovery time for case A is almost a year (11.8 months), which illustrates the severity of the economic crisis due to COVID-19. The average recovery time in case B is reduced by 3 months as a result of UI state benefits to an average of 10.4 months, since individuals replenish their savings faster. The CARES Act (case C) further reduces the average recovery time to 6.7 months, but also reduces its depth. Most individuals have a recovery time less than half a month in this situation, even though the situation is very heterogeneous. Although the median recovery time dramatically decreases with the addition of CARES, the third quartile (Q3) does not drop as much. Indeed, 25% of affected individuals will take more than 11 months to fully recover from the crisis.

Altogether, the full recovery takes more than 12 months in all cases, as illustrated by Fig.  5 . The figure shows total household savings as a percentage of pre-crisis level. The recovery remain long because, even with the most optimistic assumptions, there are some individuals who takes a long time to fully recover.

Recovery curve for the Bay Area using total household savings as a function of time for cases A (base), B (UI) and C (CARES). For case C, a confidence interval is shown based on uncertainty in exclusion rate (55% to 10%)

Moreover, it is important to note that this model assumes that individuals regain full employment and income as soon as the crisis is over, and it does not account for the longer-term macroeconomic repercussions of the pandemic crisis. In reality, the drop in demand while households rebuild their asset (and firms rebuild their balance sheet) and the uncertainty in the timeline of the COVID pandemics is likely to maintain income depressed for a long time period. Introducing this macroeconomic feedback will be a priority for future work.

Poverty and Policy Impact

In this section, the impact of different policies on lower income individuals are evaluated. The following lower income levels are used to analyze the policies’ impact: poverty level and deep poverty levels. Figure  6 shows the deep poverty and poverty rates, as well as the increase in number of individuals under those poverty levels. The poverty rates for cases A, B and C are computed based on consumption levels at the end of the crisis, and represent temporary poverty rates, as compared to annual poverty rates as is traditionally reported. For case C, uncertainty in implementation is accounted for using a median exclusion rate of 40% in addition to worst-case and best-case scenarios of 55% and 10%.

Bay Area poverty and deep poverty rates, as well as increase in poverty populations considering initial, case A, case B and case C. For case C with CARES, uncertainty is given based on exclusion rate with a median of 40% and upper and lower bounds of 55% and 10% respectively

Under case A, the deep poverty and poverty rates temporarily increase dramatically from 1.7% to 9.5% and 17.1% to 25.9% respectively, from pre-crisis to post-crisis levels. With no social protection, the Bay Area could have an additional 643,000 people in poverty. Cases B, and C reduce the increase in poverty rates by providing income and benefits to impoverished individuals. Under case C, with an assumed 40% exclusion rate, the deep poverty rate drops from 9.5% assuming no social benefits, to 4.9% with CARES. The poverty rate would still increase by 2.0% points even with the implementation of state and federal assistance (Table  3 ).

Given the uncertainty around the duration of the crisis period, the effect of the different policies are evaluated for different crisis periods: T C = 2, 3, 6 and 9 months. Figure  7 illustrates the percent of the Bay Area population under each lower income level for all three policies evaluated using the four different crisis periods. Cases B and C reduce the number of individuals for each lower income levels. Considering cases B and C, the time of the crisis exacerbates the financial strains on the Bay Area population, reflected by the increase in percentage of the population for each lower income level.

Impact of crisis time on deep poverty and poverty rates in the Bay Area for cases A, B and C. The shaded area for case C represents the uncertainty in the exclusion rate with a likely estimate of 40% and upper and lower bounds of 55% and 10% for worst-case and best-case implementation scenarios respectively

Most notably, case C, considering both UI and CARES benefits, reduces the number of individuals at the poverty levels, which a minimum at 3 months. This is because the $600/week extra UI benefits expire at approximately 4 months. Thus, individuals who are laid off and earn less than the UI benefit, will get a bump in their income and consumption. Indeed, in the short-term, some individuals may benefit from staying unemployed for up to 4 months, thanks to the higher income from social benefits.

Inequality and Geospatial Distribution

The average household consumption losses, both total [$/month] and relative [%], saving losses and recovery time (for affected individuals) by pre-crisis income quintile are shown in Fig.  8 for cases A and C as a comparison, assuming a crisis period of three months and a 40% exclusion rate for unemployment insurance and CARES. For the base case A with no assistance, although the total consumption losses [$/month] are higher for the higher income individuals, the reverse is true considering relative income losses [%]. The lowest income quintile has an average relative consumption loss of 18.3%, compared to only 5.9% for the highest income earning individuals. Furthermore, the average recovery time for affected individuals is double for the lowest income quintile compared to the highest income quintile, 14.3 compared to 7.2 months. Without social protection, the lowest income population is most impacted by the coronavirus crisis.

Household average consumption losses, total [$/month] and relative [%], saving losses and recovery time by income quintile for cases A (base) and C (CARES) assuming a crisis period of three months

On the other hand, with government assistance (case C), the consumption losses are smaller for all income quintiles, with the lowest drop for the lowest income individuals. Most likely, average consumption losses are the smallest for the lowest quintile since benefits from the assistance program can be superior to pre-crisis income in certain cases. In addition, unemployment insurance and the federal stimulus package lead to a more equal distribution of average saving losses and recovery time.

The geospatial distribution of average household consumption losses [%] in the Bay Area is shown in Fig.  9 for cases A (base) and C (CARES). Overall, the economic impacts of the business interruptions due to the coronavirus are felt throughout all Bay Area counties. The effects of COVID-19 are particularly felt in Alameda and Contra Costa counties, where the average consumption losses exceed 15% in multiple regions. Cities of South San Francisco, Richmond, San Leandro and Concord are particularly affected. In comparison, the addition of unemployment insurance and individual benefits from the CARES Act lead to a lower average consumption loss across all counties in the Bay Area, assuming a 40% exclusion rate for case C. Certain regions of the Bay Area even see a moderate increase in consumption, due to the social benefits of CARES. Contra Costa and Alameda counties remain the hardest hit areas with consumption losses greater than 10% for multiple regions.

Spatial distribution of average relative consumption change [%] per capita in the Bay Area for case A: no benefits (left) and case C: CARES (right). Red indicates an average consumption loss (negative values) and blue indicates an average consumption gain (positive values)

The geospatial distribution of average recovery time for affected individuals in the Bay Area is illustrated in Fig.  10 considering cases A and C and assuming a crisis period of three months. Considering no social protection, vast regions of the Bay Area have an average recovery time over 9 months, even exceeding 12 months in certain cases. CARES and unemployment insurance significantly diminish the recovery time of most regions in all nine counties of the San Francisco Bay Area. However, the average recovery time of affected individuals is very heterogeneous. Densely populated regions in San Jose, San Francisco and East Bay can see average recovery times exceed a year, while some rural regions, such as those near Marin and Napa Couties drop below three months.

Spatial distribution of average recovery time [months] per capita for affected individuals in the Bay Area for case A: no benefits (left) and case C: CARES (right). Darker purple indicates a longer recovery time

Assumptions, Limitations and Future Work

There are several limitations to the modeling presented in this study, specifically, (1) the distribution of income loss by industry sector, (2) the exclusion rate of unemployment insurance and CARES and (3) delay in payments for filed claims. The underlying assumptions, as well as the rationale, are discussed in this section.

Firstly, the average loss of income by industry sector, according to the broad categories of the Bureau of Economic Analysis (BEA), was implemented to reflect the direct impact of the coronavirus and business interruptions, which particularly hit non-essential service sectors. The hardest hit industry sectors were assumed to be arts, entertainment, recreation, accommodation and food services (BEA Sector 13 ART) and other services except government (BEA Sector 14 GOV), quickly followed by construction (BEA Sector 4 CON), retail trade (BEA Sector 7 RET), transportation and warehousing (BEA Sector 8 TRA), see Table  1 . This is based on reports from the Bureau of Labor Statistics (BLS), which estimates that the hardest hit sectors are the hospitality and leisure services, especially the accommodation and food sectors (Franck 2020 ). Out of a survey of 10,000 participants, (Coibion et al. 2020 ) found that 50% of respondents had an income loss with an average of more than $5,000 due to the coronavirus lockdown.

However, there is now growing evidence of second-round effects, with unemployment growing in sectors that are not directly impacted by the containment, but by supply chain effects (e.g., affected firms reducing demand for other firms) or the aggregate drop in demand. To estimate these effects, a next step is to connect the household model presented here to an Input-Output model, such as the one used in (Guan et al. 2020 ) to look at how COVID-19 affects global supply chains, or a Computable General Equilibrium (CGE) model. Alternatively, using payroll data such as the Bureau of Labor Statistics (BLS) Current Employment Statistics (CES) or other employment data can be used as an input to the model for a better representation of labor income loss by industry sector. Employment data that is specific to the San Francisco Bay Area could further calibrate the inputs of the model.

Income loss for affected individuals is assumed to start at the beginning of the crisis and lasts the duration of the crisis. At the start of the recovery phase, affected individuals regain full employment and the marginal rate of savings is assumed to be 10% of consumption. This is a conservative estimate, as many employees who were laid off during the crisis will have difficulties re-entering the economy due to the large macroeconomic effects of the coronavirus and the potential for a recession (Avalos 2020 ). In addition, social distancing measures will progressively be relaxed and some service activities, such as food services, bars and performing arts will only be fully operational in the distant future. Furthermore, household consumption during the crisis is assumed to be constant, where households distribute income revenue, state and federal assistance and savings to replenish consumption. In reality, the crisis might exacerbate savings depletion at the onset due to the delay in assistance.

Under the assumed distribution of income loss by sector, and their representative share of the Bay Area, the unemployment rate is estimated at 27.4% due to coronavirus by the end of the crisis. Certain estimates, such as the calculations from the Federal Reserve Bank of St. Louis, using filed unemployment claims from the Bureau of Labor Statistics (BLS), place the unemployment rate in the U.S. as much as 32.1% by the end of Q2 (Faria-e Castro 2020 ). As of April 23, the Labor Department reported that 26 million people in the United States have filled for unemployment insurance in solely the last five weeks (Cohen 2020 ), 3.4 million of these are in California (Avalos 2020 ). From the Bureau of Labor Statistics (BLS), the California workforce is 19,485,000 as of 2019 with 731,000 unemployed individuals, representing a 3.9% unemployment rate. Adding the 3.4 million claimants yields a 21.2% unemployment rate in California, but this only includes the individuals who have filed for unemployment as of April 23, 2020 and the number is likely to grow by the end of the crisis. Here we are assuming that the nine counties Bay Area are approximately representative of the overall California state.

Secondly, the exclusion rate of state and federal assistance (CARES) is assumed to be 40%. However, there are many uncertainties on this rate, considering the unprecedented scale of the stimulus package. With our median assumption, 40% of all unemployed individuals will not receive state and/or federal unemployment assistance during the crisis. This is due to issues related to eligibility and to implementation challenges, such as erroneous data or system backlog. According to the Employment Development Department (EDD) of the State of California, the insured unemployment rate (IUR) is 2.19% (Appendix  B ), while the unemployment rate is 3.9% in 2019. This means that in 2019, before the crisis, the exclusion rate was 43.8%. Other statistics estimate an exclusion rate as high as 59% in California (Badger and Parlapiona 2020 ). Here, it is assumed that the state UI exclusion rate will stay constant during the constant.

The rate may however increase as a result of number of people losing their job. It could also go down, since the CARES Act introduced the Pandemic Unemployment Assistance (PUA) program to boost the percentage of unemployed individuals receiving benefits, especially gig-workers, freelances, contractors and self-employed individuals. However, as of April 10, the EDD of California has not received guidelines from the federal level on how to implement the program (Castaneda 2020 ).

Thirdly, the delay in state and federal assistance is assumed to follow a lognormal distribution with mean six weeks from the start of the crisis and standard deviation of three weeks. In reality the delay in stimulus checks could be much higher, individual who file taxes without linking their banking information with the IRS, could receive checks up until September. Due to the unprecedented volume of 26 million claims across the union in just five weeks, the processing of claims and disbursement of federel unemployment insurance (UI), as well as single payment stimulus checks is likely to be severely delayed (Hernandez 2020 ; Wire 2020 ). Widespread website glitches, system crashes and backlog on phone help lines have exacerbated the problem and contributed to lag in UI payments being issued (Badger and Parlapiona 2020 ).

There are many potential extensions and applications of this study. Firstly, the long-term macroeconomic impacts of COVID-19 were mainly ignored, but in reality, could lead to income depressed for a longer period of time than the crisis. The income drop could spread to other industry sectors that feel the secondary effect of the loss of mainly the service and hospitality sectors. Additionally, the role of uncertainty in households decision-making could change the rate of savings depletion and the severity of the impact of the crisis. Households do not have perfect information about the duration nor depth of the crisis. This study assumes that consumption preferences and patterns remain unchanged with the crisis. The focus is on lower income people, where the results would not significantly change since most of the consumption of those households is fixed (e.g. housing, food). A savings rate of 10% of consumption was assumed in the recovery phase; however, households’ decisions might be impacted by current information. such as future government interventions and the development of the crisis. The modeling and optimization can be expanded to include the savings rate as a design variable.

Futhermore, the model can be extended to disaggregate consumption preferences, especially between essential (subsistence) and non-essential consumption, or more refined consumption categories. Finally, the impact of simultaneous exogenous shocks, such as natural disasters, is of great concern, since lower income populations will have depleted most of their savings and are vulnerable to another shock. For instance, Puerto Rico experienced a 5.4 magnitude earthquake on May 2 during the lockdown with several buildings damaged. Although mild, this scenario highlights the potential for a real crisis due to an added shock.

In this study, we propose a household-level model to assess the socio-economic impacts of COVID-19 on per capita consumption and savings, and the benefits from government interventions. Assuming an income loss distribution for various sectors, the model can provide estimates of households’ consumption losses (a proxy for well-being), depletion of savings, and recovery time. The San Francisco Bay Area was used as a case study. The main findings of this study are the following.

First, without any social protection, COVID-19 would lead to a massive economic shock to the system. In simulations of a 3-month lockdown, the poverty rate increases from 17.1% to 25.9% during the crisis in the Bay Area. Household savings and consumption drop significantly, and the average recovery time for individuals is almost one year. The long recovery time after the crisis will be further exacerbated by a general decrease in demand, people’s change in consumption behavior, and general slowdown of economic activities.

Second, government benefits, both state UI and federal CARES stimulus, decrease the amplitude and duration of the crisis. In likely scenario of a 3-month crisis period, the increase in poverty can be limited to 19% (from 17.1% at pre-crisis), and the average time of recovery almost halved to 6.7 months, thanks to the state UI and the federal stimulus package. However, the recovery is spatially heterogeneous, as certain communities will be impacted more than the average and could take over a year to replenish their lost savings.

A near perfect implementation of CARES Act, with 90% of unemployed individuals receiving benefits, could even lead to a slight temporary decrease in the poverty rate in the Bay Area from 17.1% to 16.5%, since the unemployment compensation is higher than pre-crisis income for certain individuals.

Further work will explore the impact of indirect and macro-level impacts, the role of uncertainty in households’ decision-making and the consequences in case of multiple waves of social distancing and the possible effect in case of simultaneous exogenous shocks (e.g., natural disasters). Indeed, these results are particularly important when considering the risk of multiple shocks: where the COVID-19 crisis is forcing most households to use their savings (especially in countries with weak social protection system), the population becomes much more vulnerable to any other shocks, including other natural disasters (e.g., tropical storms, with the hurricane season starting in the Caribbean on June 1st, earthquakes, a 5.5 magnitude earthquake hit Zagreb, Croatia on March 22, 2020 during the lockdown) or the financial and economic secondary impact from the expected recession.

Beyond this first modeling exercise, the model can be used in other countries or regions, and provide assessment of the potential impact from the “shelter-in-place mandates”, as well as the benefits from different options to provide emergency income support.

Here, what we refer to as housing income is the imputed rent for homeowners, considered as a capital income.

Rent and mortgage payment are removed since the housing income is included in i o . As a simplification, it is assumed that all income that is not invested in housing is being consumed.

Utility from savings can be interpreted either as the value of “peace of mind” when people have liquid assets, or as the net prevent value of the future use of savings for any shock that can occur in the future.

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Amory Martin - Conceptualization, Methodology, Software, Writing (original draft); Maryia Markhvida - Conceptualization, Methodology, Software, Writing (review and editing); Stéphane Hallegatte - Conceptualization, Methodology, Writing (review and editing); Brian Walsh - Conceptualization, Methodology, Writing (review and editing)

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Appendix A: Modeling

A.1 convex optimization proof.

In this section, we prove that the optimization problem Eq.  13 is convex. Since this is an unconstrained optimization (besides the convex inequality box constraints), to show the problem is convex, we need to prove that W ( S f ) is a concave function in S f (maximization), or − W ( S f ) is a convex function (minimization). Thus, we need to show that − W C ( S f ) and − W R ( S f ) are both convex functions. The following Lemmas are necessary for the derivation (Boyd and Vandenberghe 2004 ):

Let \(f(x,t):R^{2} \rightarrow R\) be a convex function in x for each t ∈ [ a , b ], and w ( t ) ≥ 0, then the function ϕ , defined as follows:

is a convex function in x .

Let \(f(x): R \rightarrow R\) be a convex function in x and a , b ∈ R . The function g defined by:

is a composition of an affine function, x ↦ a x + b , and f , and is convex in x .

Thus, since e − ρ t > 0 for all t , − W C is convex if and only if − u C and − v C are convex functions, similarly for − W R , − u R and − v R (Lemma 1).

Since 1 − η < 0, 1 − β < 0 and α > 0, \(f(x) = \frac {-1}{1 - \eta } x^{1 - \eta }\) and \(g(x) = \frac {-\alpha }{1 - \eta } x^{1 - \beta }\) are convex functions. In addition, since c ( t ), S ( t ) are piecewise affine functions in S f , − u ( t ),− v ( t ) are the compositions of affine functions and convex functions. By Lemma 2, − u ( t ),− v ( t ) are convex functions in S f .

To conclude, − W C ( S f ) and − W R ( S f ) are convex, thus − W ( S f ) is a convex function in S f . The optimization problem is convex (QED).

A.2 Calibration of Utility of Savings

The utility of savings, or current liquid assets, is of the functional form:

where α and β are parameters to statistically calibrate. Assuming an exponential law relation between consumption and savings:

where a , b are parameters to calibrate that describe the exponential law. Here we assume that savings are a log-linear function of consumption. The relationship is used to determine the utility of savings to estimate the amount individuals will deplete during the crisis or keep in the possibility of other income shocks. Although this relationship is time-dependent, since the nature and persistence of the income shock will impact savings depletion over time, here it is assumed to be constant over time for simplicity. Equilibrium between savings and consumption is assumed initially, before the crisis:

which leads to the following relation β = η / b .

Using variational form of the household well-being:

Utility of per capita savings exponential calibration

where λ isrease of consumption and δ o ( t ) is the Dirac delta function. The variational savings is the following:

The variational well-being is now:

Taking the derivative in terms of λ and setting to zero at equilibrium:

Solving we get the following equation (setting λ = 0 at equilibrium conditions):

The exponential calibration of the utility of savings is shown in Fig.  11 with coefficients a = 3.710, b = 0.638, which a coefficient of determination of R 2 = 0.9861.

Appendix B: California Labor Statistics

The unemployment insurance rate (UIR) in California over time is shown in Fig.  12 . The unemployment rates for each county in California is shown in Fig.  13 for 2018.

Insured unemployment rate (IUR) using a 13-week average from 1999 to 2019 for California according to the Employment Development Department (EDD), State of California, https://www.edd.ca.gov/about_edd/quick_statistics.htm#UIStatistics

Map of annual average unemployment rate in California by county in 2018 according to the Employment Development Department (EDD), State of California, https://www.labormarketinfo.edd.ca.gov/file/Maps/County_UR_2018BM2018.pdf

Appendix C: California Poverty Rate

The poverty rate, computed using the California Poverty Measure (CPM), for each county in California is shown in Fig.  14 .

Poverty rates for California counties according to the California Poverty Measure (CPM) courtesy of the Public Policy Institute of California (PPIC) and Stanford’s Center on Poverty and Inequality, https://www.ppic.org/publication/poverty-in-california/

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Martin, A., Markhvida, M., Hallegatte, S. et al. Socio-Economic Impacts of COVID-19 on Household Consumption and Poverty. EconDisCliCha 4 , 453–479 (2020). https://doi.org/10.1007/s41885-020-00070-3

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Received : 29 May 2020

Accepted : 14 July 2020

Published : 23 July 2020

Issue Date : October 2020

DOI : https://doi.org/10.1007/s41885-020-00070-3

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A proposal for long-term COVID-19 control

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Universal vaccination, prophylactic drugs, rigorous mitigation, and international cooperation, william a. haseltine william a. haseltine chair and ceo - access health international, trustee - the brookings institution @wmhaseltine.

August 20, 2021

Introduction

Four successive waves of COVID-19 have buffeted the United States for the past year and a half. With each wave, we have bet on different measures to push us through: First, public health measures, then drugs and treatments, and now, with our fifth wave, we hold out hope for vaccine-led recovery. But from the outset, we have underestimated this virus and its ability to maneuver the public health battleground; it is escaping the best defenses we are able to muster and finding new avenues of attack.

In this paper, I propose a multimodal strategy for long-term COVID control, one that sets up multiple barriers of protection so that we are able to not only contain SARS-CoV-2 and eliminate COVID-19 as a major life-threatening disease, but also return to a new social and economic life. The strategy uses the best of what we have on hand today—a rapidly growing arsenal of vaccines and antiviral drugs and public health measures— with an eye towards future improvements and developments.

The most immediate priority should be supporting additional research on the molecular biology of SARS-CoV-2, of which we still know surprisingly little. This is particularly important since there is great likelihood that COVID-19 will become endemic . Unlike the viruses that cause smallpox or polio, SARS-CoV-2 has demonstrated an impressive ability to adapt and thrive in both humans and animals, including our much-loved pet, cats and dogs. Even if we can eliminate the disease from our own communities, it is unlikely we can do the same across the globe and for all our animal populations at the same time.

The best we can hope for is containment of COVID-19 at levels we can tolerate both personally and economically. We have to use all the tools we have at our disposal— being aware of the inequities and disparities from country to country and within countries—that have made this and other diseases so hard to address.

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First Look: Understanding the Governor’s 2024-25 May Revision

May 2024 | By California Budget & Policy Center

• Table of Contents
• Our Statement on the May Revision
• Event registration: Examining the Governor’s 2024-25 May Revision

Introduction

Governor Gavin Newsom released a summary of the May Revision to his proposed 2024-25 California state budget on May 10, projecting a $44.9 billion shortfall, or $27.6 billion shortfall, when taking into account early budget action taken by the legislature in April to reduce the shortfall by $17.3 billion. While many of the details are forthcoming, the governor proposes to close the budget gap through the partial use of reserves, spending cuts, and delays or deferrals of spending authorized in earlier years. While the $201 billion General Fund spending plan would protect many investments made in prior years, it also includes cuts and delays to programs and services that affect the day-to-day lives of Californians, particularly foster youth, Californians with disabilities, immigrant communities, students, and families with young children. Notably, the administration’s strategy demonstrates continued resistance to adopting long-term revenue solutions, putting corporate profits over families. This shortsighted approach exacerbates wealth inequality, stalls progress, and undermines the governor’s vision of a California for all.

WHat is the May Revision?

Released on or before May 14, the May Revision updates the governor’s economic and revenue outlook; adjusts the governor’s proposed expenditures to reflect revised estimates and assumptions; revises, supplements, or withdraws policy initiatives that were included in the  governor’s proposed budget  in January; and outlines adjustments to the minimum funding guarantee for K-14 education required by  Proposition 98 (1988) .

The rapid shift from a budget surplus, as was the case in recent fiscal years, to the budget shortfall we face today, is a lingering effect of the unprecedented COVID-19 pandemic and its impact on the economy. The projected budget shortfall is primarily the result of state revenue collections that the administration now projects are $12.5 billion lower over the three-year budget window (fiscal years 2022-23 through 2024-25) than was anticipated in the governor’s January proposal. The shortfall reflects the steep stock market decline in 2022 — after significant growth in 2020 and 2021 — that negatively impacted income tax collections from high-income Californians and corporations, as well as the economic dampening effects of the Federal Reserve’s interest rate hikes.

Lower state revenues over the three-year budget window result in automatic adjustments to constitutionally-required funding allocations, including to the state’s main reserve and education reserve accounts, as well as reduced funding for K-12 schools and community colleges.

The governor’s proposed solutions to cover the shortfall would partially draw down on various state reserves . The solutions include using $12 billion enacted through legislative early action in April, however, just $3.1 billion would be used in 2024-25, and $8.9 billion would be shifted to 2025-26. The administration also proposes draining the Safety Net Reserve ($900 million), withdrawing $2.6 billion from the Public School System Stabilization Account for education, and leaving an estimated $22.9 billion for future use.

The administration’s proposals include billions in cuts, delays, and deferrals of critical investments intended to improve the health and well-being of all Californians. Reductions that will disproportionately affect the lives of low-income communities, Californians of color, Californians with disabilities, and families with children include, among others:

• Ongoing cuts to CalWORKs for supportive services, home visiting, and mental health/substance abuse services (despite draining the Safety Net Reserve intended to be used to avoid cuts to CalWORKs) and a one-time cut in employment services,
• Cuts to programs that help address homelessness and provide affordable housing,
• Indefinitely delaying further expanding child care slots, 
• Various reductions in investments in behavioral health, including cuts to infrastructure, housing, workforce, and youth behavioral health initiatives,
• Cuts in ongoing support for public health and one-time investments in the health workforce, 
• Cuts to services for Californians who are undocumented, including ongoing support for the expansion of In-Home Support Services (IHSS) and delayed expansion of the California Food Assistance Program (CFAP),  
• Pulling back investments in transitional kindergarten (T-K) facilities and pre-kindergarten (pre-K) inclusivity of students with disabilities.

The revised budget also continues to utilize a controversial accounting maneuver to shift $8.8 billion in K-12 schools and community college (K-14) costs  — on paper — from 2022-23 to later fiscal years and pay for these delayed expenses using non-K-14 funds. 

The May Revision proposals would protect and maintain some progress made in prior budget years to help improve economic security and opportunities for Californians with low incomes and Californians of color, including expanding full-scope Medi-Cal coverage to all Californians, maintaining investments in cash assistance through the CalEITC, Young Child Tax Credit, and Foster Youth Tax Credit, and temporary rate increases for child care providers.

However, state leaders have the tools and resources to prevent other harmful cuts. By further tapping into the state’s main rainy day fund and permanently reducing tax breaks for profitable corporations, state leaders can ensure corporations pay their fair share and avoid cuts to services that help Californians stay healthy, housed, and put food on the table.

This First Look report outlines key pieces of the May Revision to the 2024-25 California budget proposal, and explores how the governor prioritized spending and determined cuts to balance the budget amid a sizable projected state budget shortfall.

Budget Overview

Economic Outlook : Revised Budget Projects Moderate Job and Wage Growth Revenue : Revised Budget Reflects Additional $12.5 Billion Downgrade in Revenue Outlook Tax Policy : Modified Tax Proposals Include Temporary Business Tax Break Limitations Reserves : May Revision Includes Withdrawal of Reserve Funds, Proposes New Fund to House “Excess Revenue”

Coverage, Affordability & Access : Governor Upholds Medi-Cal Expansion, Amends MCO Tax, Proposes Harmful Cuts Health Workforce: Revised Budget Severely Cuts Health Care Workforce Development Behavioral Health : Behavioral Health Initiatives Mostly Sustained, But New Cuts Proposed Public Health : Cuts to Public Health Leave Californians Vulnerable to Future Threats

Homelessness & Housing

Homelessness : May Revision Reduces Limited Funding for Homelessness Housing : May Revision Proposes Deeper Cuts for Affordable Housing

Economic Security

Overview: May Revision Proposes Alarming Cuts to Vital Safety Nets Refundable Tax Credits : Revised Budget Maintains Tax Credits for Californians with Low Incomes Refundable Tax Credits: Revised Budget Does Not Implement Workers’ Tax Credit Slated for 2024 CalWORKs : May Revision Proposes Additional Cuts to Critical CalWORKs Support Services Food Assistance : Governor Proposes Cuts and Delays to Previous Food Assistance Commitments Child Care : Governor Maintains Temporary Rate Increase, Pauses Slot Expansion Californians with Disabilities : Governor Protects SSI/SSP but Cuts Key Services for People with Disabilities Immigrant Californians : Proposal Eliminates and Delays Vital Services for Immigrant Californians, Maintains Cut to Legal Services Domestic Violence : Governor Does Not Provide Needed Support to Domestic Violence Survivors

Early Learning & Pre-K : Transitional Kindergarten Expansion Continues While Facilities are Cut Proposition 98 : K-14 Education’s Minimum Funding Level Drops Due to Lower Revenue Estimates K-12 Education : Budget Proposal Relies on Reserves to Support K-12 School Funding Formula Community Colleges : Revised Budget Increases Reserve Withdrawals for Community Colleges Funding CSU/UC : Revised Proposal Maintains Deferrals for the CSU and UC Systems Student Financial Aid : May Revision Abandons Commitments to Expand Student Financial Aid

Justice System

State Corrections : May Revision Calls for Deactivating Prison Housing Units, but Not Prison Closures Retail Theft : Revised Budget Continues to Provide Over $100 Million to Address Retail Theft Proposition 47 Investments : Revised Budget Estimates Proposition 47 Savings of $95 Million for Local Investments

Workforce & Climate Change

Other/General Workforce : Governor Proposes Additional Cuts to Several Workforce Programs Climate Change : Revised Budget Proposes Further Cuts to Prior Environment Commitments

virtual event

How does the governor’s administration navigate and prioritize spending in the face of a challenging fiscal landscape?

Join us for this free, virtual event on May 22.

Revised Budget Projects Moderate Job and Wage Growth

The administration’s economic outlook projects trends in major economic indicators that affect state tax collections and revenues in the budget. The revised outlook projects steady, but slowing national economic growth into next year, with California job gains expected to remain relatively weak through 2025. The number of nonfarm jobs in the state is forecast to increase by just 0.1% in 2024 and 0.4% in 2025, following a stronger increase of 0.9% in 2023 and 1.5% in 2019, just before the pandemic. California’s unemployment rate is projected to remain relatively higher in the near term as well: 5.2% in 2024 and 5.3% in 2025, up from 4.7% in 2023 and 4.1% in 2019. Wages and incomes are also expected to grow more slowly this year and next than just prior to and coming out of the pandemic downturn. The revised budget does not project a recession in the near term, but does note that if inflation remains elevated, the Federal Reserve could maintain higher interest rates which could slow economic activity by more than projected. 

While the administration’s outlook is useful for understanding how economic conditions might impact budget revenues, it’s also important to consider how economic conditions are affecting Californians with low incomes, who count on programs and services funded by the budget. In March 2024, the majority of California households with incomes under $25,000 (55%) reported having difficulty paying for basic needs like food, housing, and medical expenses, according to the most recent US Census Pulse survey. Black, Latinx, and other Californians of color, as well as households with children were more likely to struggle paying for basic expenses. The Census data from March also show that 42% of Black households with children and 32% of Latinx households with children did not have enough to eat , compared to 15% of white households with children. Among all households with children, about one-quarter (24%) had insufficient food. In addition, the latest Census data show that California continues to have the highest poverty rate of the 50 states based on the Supplemental Poverty Measure, which provides a more accurate picture of poverty by accounting for differences in the cost of housing across communities. Housing costs in California typically exceed costs in the rest of the nation, and rents have risen sharply in many parts of the state in recent years making it difficult for Californians with low incomes to afford housing .

Revised Budget Reflects Additional $12.5 Billion Downgrade in Revenue Outlook

The governor’s revised proposal is based on an updated revenue estimate for the three-year budget window spanning fiscal years 2022-23 through 2024-25. After lower-than-expected tax collections since the governor’s January proposal, the administration now expects General Fund revenues to be about $12.5 billion lower over that window than the January estimate. This is before taking into account loans and transfers, the governor’s revenue proposals, and other budget solutions ( see Tax Proposals section ).

The administration continues to have a more optimistic revenue outlook than the Legislative Analyst’s Office, which recently projected that the three-year total of the “Big Three” General Fund revenues sources — personal income taxes, corporate taxes, and sales taxes, which together make up the majority of General Fund revenues — could be around $19 billion lower than the governor’s January projection.

After accounting for automatic spending changes resulting from the lower revenue estimate, the governor estimates that the downgraded revenue outlook results in a $7 billion addition to the three-year state deficit the governor identified in January. 

The administration expects state revenue growth to generally return to the pre-pandemic pattern after the dramatic spike in revenues during the pandemic as the stock market surged and then subsequently corrected.

Modified Tax Proposals Include Temporary Business Tax Break Limitations

In January, the governor proposed a modest package of revenue solutions that included limiting the extent to which businesses can use prior-year losses to offset their taxable profits (“Net Operating Loss carryforwards”), eliminating oil and gas tax subsidies, and other minor tax changes. These revenue proposals made up less than 1% of the total budget solutions proposed in January.

The May Revision modifies the January revenue-related proposals by:

• Replacing the previous Net Operating Loss proposal with temporary business tax benefit limits.
• Clarifying existing law for how some multinational corporations calculate their taxable income in California.

The updated proposal would suspend the use of Net Operating Losses for businesses with state income above $1 million, and limit total business tax credits that a business can use in a single year to $5 million. The tax credit limit would exclude Low-Income Housing Tax Credits as well as Pass-Through Entity Elective tax credits. These limitations would be in effect for up to three years, beginning with the 2025 tax year, and could be eliminated if the administration determines that the revenue situation has improved sufficiently by the 2025-26 May Revision. The administration estimates these limitations would raise revenues by $900 million in 2024-25 and $5.5 billion in 2025-26.

The administration expects this proposal to raise $216 million in the budget window.

While temporary limitations on businesses’ ability to reduce their state income taxes help to address the deficit in the short-term, the governor’s revised proposal does little to increase state revenues on an ongoing basis and misses key opportunities to make the state’s tax system more fair. Policymakers should consider permanent limitations on business tax credits — as some states already do — to ensure that businesses are not paying next to nothing in state income taxes when they turn large profits. State leaders should also explore other options to permanently increase state revenues by making the corporate tax system more fair and eliminating or reforming other costly and inequitable tax breaks , which are not regularly considered as part of the budget process.

May Revision Includes Withdrawal of Reserve Funds, Proposes New Fund to House “Excess Revenue”

California has a number of state reserve accounts that set aside funds intended to be used for a “rainy day” when economic conditions worsen and state revenues decline. Some reserves are established in the state’s Constitution to require deposits and restrict withdrawals, and some are at the discretion of state policymakers.  

California voters approved Proposition 2 in November 2014 , amending the California Constitution to revise the rules for the state’s Budget Stabilization Account (BSA) , commonly referred to as the rainy day fund. Prop. 2 requires an annual set-aside equal to 1.5% of estimated General Fund revenues. An additional set-aside is required when capital gains revenues in a given year exceed 8% of General Fund tax revenues. For 15 years — from 2015-16 to 2029-30 — half of these funds must be deposited into the rainy day fund, and the other half is to be used to reduce certain state liabilities (also known as “budgetary debt”).

Prop. 2 also established a new state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA) . The PSSSA requires that when certain conditions are met, the state must deposit a portion of General Fund revenues into this reserve as part of California’s Prop. 98 funding guarantee ( see Prop. 98 section ). In order to access the funds in the BSA and PSSSA, the governor must declare a budget emergency — an action that is not included in the May Revision or in the early budget action agreed to by the governor and Legislature in April, but will be necessary to access these funds.

The BSA and the PSSSA are not California’s only reserve funds. The 2018-19 budget agreement created the Safety Net Reserve Fund , which holds funds intended to be used to maintain benefits and services for CalWORKs and Medi-Cal participants in the event of an economic downturn. Additionally, the state has a Special Fund for Economic Uncertainties (SFEU) — a reserve fund that accounts for unallocated General Fund dollars and that gives state leaders total discretion as to when and how they can use the available funds.

The current-year (2023-24) budget, enacted in mid-2023, projected $22.3 billion in the BSA; $10.8 billion in the PSSSA; $900 million in the Safety Net Reserve; and $3.8 billion in the SFEU. However, revenue adjustments in the current year result in updated 2023-24 projections in the governor’s proposed budget — $22.6 billion in the BSA; $2.6 billion in the PSSSA; $900 million in the Safety Net Reserve; and a shortfall of $843 million in the SFEU, which fluctuates throughout the year based on changes in revenues.

In April 2024, the governor and legislative leaders agreed to an early action budget package to partially address the state’s budget shortfall that included drawing down $12 billion from the BSA, a proposal that was also included in the governor’s January budget proposal.

The May Revision:

• Includes the $12 billion withdrawal from the BSA, but spreads the withdrawal over the next two fiscal years — utilizing only $3.1 billion in 2024-25 and shifting $8.9 billion to 2025-26. 
• Withdraws all $900 million from the Safety Net Reserve, despite also proposing significant cuts to the CalWORKs program, a program the reserve is designed to protect ( see CalWORKs section ).
• Withdraws $5.8 billion from the PSSSA in 2023-24 and the remaining $2.6 billion in 2024-25.
• Projects a 2024-25 year-end SFEU balance of $3.4 billion.

In total, the May Revision proposes to withdraw less from the state’s rainy day funds for 2024-25 than the governor’s January proposal, despite the fact that the administration projects that the budget shortfall has increased since January. Taking into account the remaining reserves in the BSA and the SFEU, the governor’s May Revision projects total remaining reserves of $22.9 billion at the end of 2024-25, compared to $18.4 billion in the governor’s January proposal. 

Given that the administration’s approach to resolving the state budget shortfall includes an array of harmful cuts to vital programs and services that help Californians with low incomes, communities of color, and Californians with disabilities, state leaders appear to have additional room to responsibly draw upon reserves to protect those programs and also leave funds available to address future fiscal uncertainties.

New Fund to Capture “Excess Revenue”

The May Revision also signaled the administration’s intent to enact legislation to enable state leaders to save more during future upswings in revenue by requiring the state to set aside a portion of anticipated “surplus” funds — funds that exceed a yet-to-be-determined standard for historical trends. The administration notes that the funds would not be able to be committed until revenues have been realized. 

While the specifics of the governor’s proposal are not yet available, any efforts to set aside additional funds would likely interact with other constitutional requirements that affect state spending and reserves, including Prop. 4 (1979; the “Gann Limit”), Prop. 98 (1988), and Prop. 2 (2014). For instance, the administration notes that amendments would be needed to Prop. 2 to allow for increased deposits to the BSA. Any amendments to the constitutional provisions, however, would need to be approved by California voters.

State Budget Reserves Explained

See our report, California’s State Budget Reserves Explained , to learn more about the savings accounts policymakers can use to support Californians in times of budget shortfalls.

Governor Upholds Medi-Cal Expansion, Amends MCO Tax, Proposes Harmful Cuts

Access to health care is necessary for everyone to be healthy and thrive. About 14.5 million Californians with modest incomes — nearly half of whom are Latinx — are projected to receive free or low-cost health care through Medi-Cal (California’s Medicaid program) in 2024-25. Another 1.8 million Californians purchase health coverage through Covered California, the state’s health insurance marketplace. 

The May Revision maintains recent Medi-Cal expansions, but pulls back on other health care investments that were established in prior years. Specifically, the revised budget:

• Maintains the expansion of Medi-Cal eligibility to undocumented adults ages 26 to 49, but cuts $94.7 million to eliminate In-Home Supportive Services (IHSS) for all undocumented Californians.
• Cuts $280 million for Equity and Practice Transformation Payments to Providers.
• Cuts $62 million from the Health Care Affordability Reserve Fund intended to reduce cost-sharing in Covered California.
• Eliminates the Indian Health Grant Program.
• Freezes funding levels for county administration of Medi-Cal eligibility.
• Eliminates acupuncture as an optional Medi-Cal benefit for adults.
• Eliminates $2 million in ongoing General Fund for free clinics.
• Does not provide funding to reform the Medi-Cal Share of Cost program.
• Does not provide funding to implement continuous coverage for children from birth to age five.

These services help Californians with low incomes who are over the age of 65, blind, and/or disabled live with dignity in their own homes. Under this revised spending plan, about 14,000 Californians would lose access to IHSS solely due to their immigration status. This proposal is both harmful and xenophobic, potentially pushing immigrant families deeper into poverty. These cuts could also lead to increased state spending on nursing home care in the long run. State leaders should not compromise home care for thousands of Californians simply due to their immigration status.

These grants to certain Medi-Cal providers were intended to improve quality, health equity, behavioral health integration, and primary care infrastructure. The May Revision maintains $70 million General Fund expenditures included in the 2022 Budget Act.

These funds are critical for Californians who are uninsured and struggling to purchase coverage as well as for those who are insured but can’t afford to access the care they need.

This aims to improve the health status of American Indians living in urban, rural, and reservation or rancheria​ communities throughout California. The May Revision proposes to reduce $23 million annually beginning in 2024-25 to eliminate this program.

This reflects a reduction of $20.4 million in 2024-25 and ongoing. This reduction occurs at a time when counties are processing a high volume of renewals and many Californians are losing Medi-Cal coverage .

The estimated reduced General Fund cost for this cut is $5.4 million in 2024-25 and $13.1 million ongoing. Acupuncture is performed to prevent, modify or alleviate severe, persistent chronic pain resulting from a medical condition.

This provides primary care, preventive health care, and additional health services to medically underserved Californians.

This would alleviate financial burdens for many older adults and people with disabilities. Under the current Medi-Cal Share of Cost program, which forces many Californians to choose between paying for their health care, rent, food, or other basic needs. This reform was passed in the 2022 Budget Act but was subject to future appropriation. 

California was one of the first states to pass a policy that would ensure that children under age five can keep their Medi-Cal coverage without administrative renewals. Funding is needed to start the necessary steps to implement this policy change.

The May Revise also amends the Managed Care Organization (MCO) tax revenue and expenditure proposal. The MCO tax is a provider tax imposed by states on health care services that essentially reduces, or offsets, state General Fund spending on Medi-Cal. The federal government approved the initial MCO tax proposal last year. In January, the administration proposed to increase the MCO tax and the May Revision proposes an additional amendment to the MCO tax to include health plan Medicare revenue, resulting in an additional $689.9 million in reduced General Fund costs in 2024-25, $950 million in 2025-26, and $1.3 billion in 2026-27. These changes would be subject to federal approval. Overall, the May Revision includes $9.7 billion in MCO tax funds over multiple years to support the Medi-Cal program. However, rather than using $6.7 billion of this amount to continue Medi-Cal provider rate increases, as originally planned, these funds will be used to offset General Fund spending. 

The May Revise does protect some health care investments that were established in prior years. Specifically, the budget:

• Sustains the ambitious Medi-Cal reform effort known as CalAIM (California Advancing and Innovating Medi-Cal).
• Maintains one-time $200 million ($100 million General Fund) in 2024-25 to support access to reproductive health services.
• Maintains commitment to eliminate the Medi-Cal asset test for seniors and people with a disability.

This was originally introduced in 2019. The main goal of this initiative is to better support millions of Californians enrolled in Medi-Cal — particularly those experiencing homelessness, children with complex medical conditions, children and youth in foster care, Californians involved with the justice system, and older adults — who often have to navigate multiple complex delivery systems to receive health-related services. Initial components of CalAIM launched in the beginning of 2022 and the remaining components will go live over the next several years.

The administration plans to develop a federal demonstration waiver that would support access to family planning services for Medi-Cal enrollees as well as strengthen the state’s reproductive health safety net. Access to reproductive health services, including contraceptive care, sexually transmitted infection prevention and treatment, obstetrical care, and abortion services, have a profound impact on the lives of women and pregnant people.

Specifically, the revised budget includes $112.2 million total funds ($56.1 million General Fund) in 2023-24 and $227.2 million total funds ($113.6 million General Fund) in 2024-25 for the elimination of the Medi-Cal asset test which became effective on January 1, 2024.

Lastly, the May Revision includes directed payments to children’s hospitals and public hospitals. This includes an annual allocation of $230 million to support children’s hospitals, with half of these funds provided by the federal government and the remaining half sourced from the Medi-Cal Provider Payment Reserve Fund. 

Revised Budget Severely Cuts Health Care Workforce Development

Access to health care services is important for everyone’s health and well-being. The state’s workforce must meet the needs of Californians to achieve equitable access to timely and culturally competent health services. While state policymakers have made considerable investments in recent years to bolster the health workforce, investments in various health workforce areas still fall short. 

Despite the clear need to invest in the health workforce, the May Revision cuts over $1 billion over multiple years. This includes:

• $854.6 million General Fund across five years for various health care workforce initiatives.
• $189.4 million Mental Health Services Act Fund for behavioral health workforce programs.

This includes community health workers, nursing, social work, primary care education and training, and efforts to increase the number of underrepresented individuals in health professions. The May Revision proposes to cut $300.9 million in 2023‑24, $302.7 million in 2024-25, $216 million in 2025‑26, $19 million in 2026-27, and $16 million in 2027‑28 for these initiatives.

These cuts impact the social work initiative, addiction psychiatry fellowships, university and college grants for behavioral health professionals, expanding Master of Social Work slots, and the local psychiatry behavioral health program overseen by the Health Care Access and Information Department.

The May Revision also modifies previous plans to enhance Medi-Cal provider participation under the Managed Care Organization (MCO) tax proposal. While the revised budget maintains $727 million to increase provider rates for primary care, maternity care (including doulas), and non-specialty mental health services, it reallocates $6.7 billion previously intended for other health areas, including primary and specialty care in Medi-Cal, abortion and family planning access, clinics, and the Medi-Cal workforce pool. This redirection of funds towards existing Medi-Cal services is sensible in a budget deficit, but it raises concerns about the impact on timely access to health care services.

The health care workforce and access to health care services are intrinsically linked. If people cannot find a health care provider in their area or face extended wait times for an appointment, they do not have meaningful access to health care. State policymakers must continue to build a health care workforce that not only meets the needs of Californians but also mirrors the state’s diverse population in terms of race, ethnicity, sability, gender identity, and sexual orientation. Doing so will require sustained, ongoing investments, not cuts.

Behavioral Health Initiatives Mostly Sustained, But New Cuts Proposed

Millions of Californians who cope with behavioral health conditions — mental illness or substance use disorders — rely on services and supports that are primarily provided by California’s 58 counties. Improving California’s behavioral health system is critical to ensuring access to these services for all Californians, regardless of race, age, gender identity, sexual orientation, or county of residence. 

In recent years, state policymakers have launched various initiatives to transform California’s behavioral health system with the goal of improving access. Proposition 1 , the most recent of these initiatives, was approved earlier this year. Prop. 1 is a two-part measure that 1) amends California’s Mental Health Services Act and 2) creates a $6.38 billion general obligation bond to fund behavioral health treatment and residential facilities as well as supportive housing for veterans and Californians with behavioral health needs.

The May Revise includes some initial funding to begin Prop. 1 implementation, including:

• $126.9 million for the Department of Health Care Services in 2024-25.
• $85 million ($50 million General Fund) for county behavioral health departments.

Of this amount, $16.9 million is from the General Fund, $28.2 million is from the Behavioral Health Services Act Fund, $31.6 million is from the Opioid Settlement Fund, $10.4 million is from the Behavioral Health Infrastructure Bond Act, and $39.8 million is from the federal government.

This provides mental health and substance use disorder services to Californians through Medi-Cal and other programs.

In the governor’s January budget proposal and the revised budget proposal, the administration maintains funding to continue behavioral health initiatives that state leaders launched in recent years. For instance, the revised budget sustains the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration , which aims to improve mental health services for Medi-Cal members. The administration assumes that implementation of BH-CONNECT will begin on January 1, 2025. Major reforms to the Medi-Cal program as well as the level of federal funding provided must be negotiated with the federal government through the Medicaid waiver process. As such, implementation will depend on the availability of funding and federal approval.

However, the revised budget also proposes a series of cuts and delays to other behavioral health initiatives. Specifically, the revised budget:

• Eliminates $450.7 million one-time from the last round of the Behavioral Health Continuum Infrastructure (BHCIP) Program.
• Reduces funding and modifies the Children and Youth Behavioral Health Initiative.
• Cuts $132.5 million in 2024-25 and $207.5 million in 2025-26 for the Behavioral Health Bridge Housing Program.
• Cuts $126.6 million ongoing General Fund for CalWORKs mental health and substance abuse services, effectively eliminating this service.
• Cuts $61 million General Fund in 2024-25 and ongoing for the Naloxone Distribution Project and Medication Assisted Treatment.
• Includes $27.2 million General Fund in 2023-24 and $37.8 million General Fund in 2024-25 for Community Assistance, Recovery, and Empowerment (CARE) Act.

This program provides competitive grants to expand the community continuum of behavioral health treatment resources. The May Revision proposes to reduce BHCIP funding by $70 million General Fund in 2024-25 and $380.7 million General Fund in 2025-26. While BHCIP will receive Prop. 1 bond funds, these funds are inadequate to address the overarching need for state investments. ( See homelessness section. )

The spending reductions — $72.3 million in 2023-24, $348.6 million in 2024-25, and $5 million in 2025-26 — impact school-linked health partnerships, various grant programs, a public education campaign, and a youth suicide reporting and crisis response pilot program. Of this amount, the administration notes that $140 million General Fund proposed in 2024-25 to support a platform is no longer needed. The revised budget does maintain $9.5 million ($4.1 million General Fund) in 2024-25 to establish a Wellness Coach benefit in Medi-Cal, which the administration proposed in January. Effective January 1, 2025, these coaches will offer wellness education, screening, support coordination, and crisis management services to children and youth in schools and other behavioral health settings.

This program aims to address the immediate housing and treatment needs of people with serious behavioral health conditions who are also experiencing unsheltered homelessness. The administration notes that $90 million in Behavioral Health Services Act funding would be provided in 2025-26, resulting in a net reduction of $117.5 million for that year. ( See homelessness section. )

California has led the way in expanding CalWORKs support services, recognizing families often need additional support, like mental health and substance use treatment, to improve their well-being and address barriers to work. ( See CalWORKs section. )

Naloxone is a life-saving medicine that reverses an opioid overdose and Medication Assisted Treatment is treatment for a substance use disorder that includes medications along with counseling and other support.

This is a plan to establish court-ordered treatment for people experiencing both homelessness and serious behavioral health challenges. The revised budget adjusts estimated county funding to align with recent trends in utilization. 

Investing in the state’s behavioral health system is crucial for supporting Californians who are coping with mental health conditions or substance use disorders. State leaders should continue to invest in the behavioral health system and address the behavioral health workforce shortage. Policymakers can also invest in efforts to make sure that the behavioral health workforce better reflects the diversity of all Californians, including their gender identities and sexual orientations.

Cuts to Public Health Leave Californians Vulnerable to Future Threats

Everyone should have the opportunity to be healthy and thrive. The California Department of Public Health as well as local public health departments are vital in protecting and promoting Californians’ health and well-being. From improving living conditions to promoting healthy lifestyles to responding to infectious disease emergencies, public health workers are essential.

Despite this important responsibility, funding has not kept pace with the cost of responding to ongoing and emerging health threats. Many Californians suffered during the COVID-19 pandemic due to the state’s lack of preparedness. Communities of color experienced higher rates of illness and death due to historic and ongoing structural racism that deny many communities the opportunity to be healthy and thrive. Structural racism continues to underscore the need to address the root cause of health disparities through public health initiatives. 

In an alarming move, the governor’s revised budget proposes significant cuts to public health investments that were established in previous years. Specifically, the May Revision eliminates $52.5 million in 2023-24 and $300 million ongoing General Fund thereafter to improve public health infrastructure at the state and local level. Under this revised spending plan, local health jurisdictions would no longer continue to receive a minimum base allocation to support workforce expansion, data collection and integration, and partnerships with health care delivery systems and community-based organizations. At the state level, these cuts will reduce the capacity to assess and respond to current and emerging public health threats and will weaken key functions such as emergency preparedness and public health communications.

These cuts to public health capacities are short-sighted and harmful. After years of underinvestment in public health, these dollars provided much-needed infrastructure support. Given that public health emergencies and climate change disasters often disproportionately impact people with low incomes and communities of color, these cuts undo progress to advance health equity. State leaders should ensure that counties and cities have the capacity to address ongoing and future public health threats.

May Revision Reduces Limited Funding for Homelessness

Having a place to call home is core to living with dignity and health. Yet homeless service providers served over 330,000 Californians experiencing homelessness last year, underscoring both the need and increased capacity of the state’s response systems. Homelessness providers and localities are serving more individuals and families than ever before partially due to previous one-time state funding investments that provided critical resources for homelessness prevention and resolution services. Despite this, the May Revision proposes no new resources and reduces previous allocations, effectively leaving no significant state funding to address homelessness in 2024-25 or beyond. 

The May Revision proposes to eliminate $260 million in supplemental grant funds for the  Homeless Housing, Assistance and Prevention (HHAP) Grant Program in 2025-26, but maintains the last round of funding in 2023-24. HHAP is critical as it provides local jurisdictions with flexible funds to address homelessness in their communities in a variety of ways, ranging from rental and operating subsidies to acquiring shelter, interim and permanent housing beds, and street outreach, among other uses. The May Revision also changes previously proposed funding delays into funding cuts for various homelessness programs that serve diverse populations.

These funding reductions include:

• A reduction of $132.5 million in 2024-25 and $207.5 million in 2025-26 for the Behavioral Health Bridge Housing Program.
• A reduction of $80 million General Fund for the Bringing Families Home Program.
• A reduction of $65 million General Fund for the Home Safe Program.
• A reduction of $50 million General Fund for the Housing and Disability Advocacy Program.

This leaves  $132.5 million General Fund in 2024-25 and $117.5 million ($90 million Mental Health Services Fund and $27.5 million General Fund) in 2025-26. These funds help provide immediate housing for people experiencing homelessness who have a serious mental illness or substance use disorder ( see Behavioral Health section ).

Appropriated in the 2022 Budget Act, which serves families involved in the child welfare system.

Appropriated in the 2022 Budget Act, which supports the safety and housing stability of individuals involved in Adult Protective Services.

Appropriated in the 2022 Budget Act, which assists people experiencing or at risk of homelessness to connect with disability benefits and housing supports.

Also notable is the increased reduction of $450.7 million one-time from the last round of the Behavioral Health Continuum Infrastructure Program (BHCIP), leaving $30 million one-time General Fund in 2024-25. This program provides competitive grants to expand the community continuum of behavioral health treatment resources ranging from wellness centers to psychiatric care facilities. BHCIP will be receiving $4.4 billion in bond funds through Proposition 1 , which voters approved in March 2024. The Department of Health Care Services is anticipated to open funding applications this summer and begin granting competitive awards by the fall ( see Behavioral Health section ). Prop 1. also restructures funds from the Mental Health Services Act, which exists separately from the state budget. It now requires counties to redirect 30% of these funds for housing interventions for people experiencing or at risk of homelessness with behavioral health conditions. However, these funds are inadequate to address the overarching need for state investments, as they focus solely on a specific subset of unhoused Californians.

May Revision Proposes Deeper Cuts for Affordable Housing

All Californians deserve a safe, stable, and affordable place to call home. However, many are blocked from this opportunity due to California’s affordable housing shortage and accompanying high housing costs. Renters, people with low incomes, Black and Latinx Californians, and undocumented Californians are especially likely to struggle to afford their homes . Yet despite noting California’s serious housing affordability challenges, the May Revision proposes deeper funding reductions and scarce new investments to affordable housing programs.

The administration now proposes $1.7 billion in General Fund reductions for various programs that support affordable housing development and homeownership . The May Revision reductions build on those in the January proposed budget . These include:

• An additional reduction of $236.5 million General Fund for the Foreclosure Intervention Housing Preservation Program in 2023-24 , bringing the total reduction to $474 million, which will eliminate the program.
• An additional reduction of $75 million General Fund for the Multifamily Housing Program , bringing the total reduction to $325 million General Fund, eliminating state funding in 2023-24.
• A newly proposed reduction of $127.5 million General Fund for the Adaptive Reuse Program , with $87.5 million from the 2023 Budget Act and $40 million from the 2022 Budget Act, which will eliminate the program. 
• An additional reduction of $35 million General Fund for the Infill Infrastructure Grant Program , with $25 million from 2023 Budget Act and $10 million from the 2022 Budget Act, eliminating state funding in 2023-24.
• An additional reduction of $26.3 million General Fund for the Veterans Housing and Homelessness Prevention Program from the 2022 Budget Act. The January proposed budget already fully reduced allocated state funds for this program in 2023-24.

The May Revision does reinstate an additional $500 million for state Low Income Housing Tax Credits – as has been done since 2019 – which help promote and finance affordable housing development. The administration also highlights Proposition 1 , approved by voters in March, as providing some funding for supportive housing programs. Prop. 1 provides roughly $2 billion in bond funds for the development of permanent supportive housing units specifically for Californians experiencing or at risk of homelessness with behavioral health needs (see Homelessness and Behavioral Health sections). Over half of these funds are designated for veterans. The Department of Housing and Community Development is anticipated to open applications for this funding at the end of 2024. However, these funds are specifically for supportive housing units and fall short in providing the diverse critical investments needed to continue meaningful, affordable housing development in California.

state budget terms defined

What’s the difference between a trailer bill and policy bill? A deficit and an operating deficit? And what exactly is a “Budget Bill Jr.?” Our Glossary of State Budget Terms answers that and more.

May Revision Proposes Alarming Cuts to Vital Safety Nets

While California has made significant investments in its social safety net in recent years, millions of people in communities across the state are still struggling to make ends meet as the cost of living continues to outpace incomes. Poverty, particularly among children and people of color, is on the rise. Despite this, the governor’s proposed budget includes very concerning cuts to vital safety net programs that may have devastating consequences for California families with the greatest needs. Cuts to the Department of Social Services, which administers the state’s safety net programs, total nearly $2 billion in the 2024-2025 fiscal year alone. These cuts target key investments in CalWORKs, food assistance, and child care. The budget proposal outright eliminates several critical support services for CalWORKs families, significantly reduces funding for program administration, and drains the dedicated reserves that were designed to protect the program from cuts.

Additionally, the proposal delays a long-awaited program expansion of food assistance to undocumented older adults and defunds a pilot to increase CalFresh benefits. In delaying and eliminating these vital services, which were small stepping stones to larger expansions that would close gaps in food insecurity across the state, the proposal would take California a step backward. In the child care space, the governor indefinitely delays his promised slot expansion despite the growing unmet need. Other cuts in this space would affect programs that serve foster youth and people with disabilities. 

California’s future largely depends on children whose entire lives will be shaped by the extent to which our state invests in their education, health, and well-being. But children cannot thrive unless their families thrive. Despite the budget shortfall, California’s leaders have a responsibility to ensure that our state’s children and families have the opportunity to reach their full potential.

Revised Budget Maintains Tax Credits for Californians with Low Incomes

California’s Earned Income Tax Credit (CalEITC), Young Child Tax Credit, and Foster Youth Tax Credit are refundable state income tax credits that provide tax refunds or reductions in state taxes owed to millions of Californians with low incomes, boosting their incomes and helping them to pay for basic needs like food. These credits also help to promote racial and gender equity by targeting cash to Californians of color, immigrants, and women who are frequently blocked from economic opportunities and forced into low-paying jobs that fail to provide economic security .

The administration maintains these tax credits in the revised budget while also continuing to cut funding for free tax preparation assistance, education, and outreach,  in half to $10 million in 2024-25, as proposed in January. These funds support community based organizations (CBOs) in their efforts to educate community members about state and federal refundable tax credits, connect eligible tax filers to free tax preparation services and assist tax filers in applying for or renewing Individual Taxpayer Identification Numbers, which some Californians must have in order to claim tax credits. Cutting this funding will reduce the capacity of CBOs to provide these services.

Revised Budget Does Not Implement Workers’ Tax Credit Slated for 2024

The 2022-23 budget included a new refundable tax credit for workers slated to become available in tax year 2024 if the Department of Finance determined that sufficient General Fund resources were available to support it. This credit was intended to help cover the cost of being a member of a labor union, particularly among workers with lower incomes who are typically excluded from an existing tax deduction for certain business expenses, including union dues. The administration does not include this new tax credit in the revised 2024-25 budget given the multi-year budget shortfall.

May Revision Proposes Additional Cuts to Critical CalWORKs Support Services

The California Work Opportunity and Responsibility to Kids (CalWORKs) program is a critical component of California’s safety net for families with low incomes. The program helps over 650,000 children and their families, who are predominantly people of color, with modest cash grants, employment assistance, and critical supportive services. The governor’s May Revision proposes deeply concerning cuts to CalWORKs administrative and program funding in addition to the significant cuts proposed in January.

The newly proposed cuts include:

• A one-time reduction of $272 million in 2024-25 for employment services under the single allocation funding.
• An ongoing reduction of $126.6 million for Mental Health and Substance Abuse Services, effectively eliminating this service. 
• An ongoing reduction of $47.1 million for the Home Visiting Program, which is designed to support positive health, development, and well-being of CalWORKs families with children under 2.

This amounts to a total cut of $445.7 million. Adding on to the cuts proposed in January , which totaled about $293 million in FY 24-25, this brings the total to about $739 million in cuts to CalWORKs, two-thirds of which would be ongoing. For many years, California has led the way in expanding CalWORKs support services, recognizing families have diverse needs and often need additional support to address barriers to work and improve their well-being. Taking programs away that offer mental health support, crisis intervention (Family Stabilization Program), and parenting support (Home Visiting Program), which research has shown can reduce or prevent the effects of adverse experiences for children, could jeopardize families’ ability to meet all program requirements and maintain access to their grants. Families not meeting strict program requirements will be at risk of punitive sanctions, which will only push them deeper into poverty. 

In addition to the proposed cuts, the governor’s budget does not include funding to redirect collected child support payments from the state back to former CalWORKs parents. For formerly assisted families, outstanding child support debt that is collected does not go to the families but rather goes to the state, county, and federal governments as “reimbursement” for the costs associated with the CalWORKs program.  Under this change , which was supposed to go into effect in April 2024, these families would have received an estimated annual total pass-through of $187 million annually.

Additionally, the governor proposes drawing down the full $900 million in the Safety Net Reserve, which was created to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn ( see Reserves section ). While the governor does not propose cutting cash grants, given the projections of a sustained deficit in upcoming years, fully drawing down the reserve will leave CalWORKs vulnerable to additional cuts, similar to what occurred during the Great Recession . Closing the budget shortfall at the expense of families with low incomes is a short-sighted approach that could have detrimental effects on California’s economy and families facing the greatest needs.

Governor Proposes Cuts and Delays to Previous Food Assistance Commitments

All Californians should be able to put enough food on the table without having to go without other basic needs. But about 1 in 11 California households — and 1 in 8 California households with children — sometimes or often didn’t have enough to eat in March 2024, according to recent US Census Household Pulse data. In recent years, households have been hit with both rising food prices as well as the expiration of enhanced pandemic-era food benefits . 

CalFresh — California’s version of the federally funded Supplemental Nutrition Assistance Program (SNAP) — provides modest food assistance benefits to about 5.4 million Californians . The California Food Assistance Program (CFAP) is a state-funded program providing food benefits to certain non-citizens who are excluded from receiving federal  benefits, but undocumented immigrants are still excluded from CFAP benefits. The 2021-22 budget agreement included a plan to expand CFAP to Californians aged 55 and older who are excluded solely due to their immigration status. The expansion is currently set to begin in October 2025.

While the governor’s January budget proposal generally maintained prior commitments to  improve and expand the state’s food assistance programs, the May Revision proposes cuts and delays that would reverse or pause recent progress, including:

• Delaying the CFAP to include undocumented adults age 55 and older until 2027-28.
• Eliminating funding for the CalFresh Minimum Nutrition Benefit Pilot Program.
• Eliminating the Work Incentive Nutrition Supplement Program (WINS) beginning in 2025-26.

This means those older adults will continue to be excluded from vital food benefits for the next several years. The administration also has not put forth any plans to end this exclusion for undocumented Californians under age 55, even while 45% of undocumented Californians with low incomes are affected by food insecurity.

The 2023-24 budget created this pilot program and included $15 million one-time funding for 2024-25 to provide a state supplement to increase the minimum benefit for selected households to $50 for one year. This pilot program was a small step in acknowledging the inadequacy of the current minimum benefit of $23.

WINS is a $10 supplemental food benefit for some working CalFresh households. The Legislative Analyst’s Office estimates that eliminating the program would reduce food benefits for around 125,000 households . The program is funded through CalWORKs but is only available for households not receiving regular CalWORKs benefits. The program was created with the primary goal of improving the CalWORKs Work Participation Rate (WPR), and it appears the proposal to eliminate WINS is a response to a recent federal law that would require the state to increase the supplement in order for it to continue helping the state achieve its WPR target, which could cost the state an additional $40 million each year. However, this elimination represents a loss of benefits for those households that rely on the additional assistance to keep food on the table, and the administration does not propose any relief for families to offset that loss.

Additionally, the budget does not include funding to implement Cal Grant reform, which would allow more college students to access CalFresh benefits ( see Financial Aid section ). The 2022 budget included a plan for Cal Grant reform, but it was subject to sufficient funds being available in 2024, so this was one of several “trigger” proposals included 2022 that will not be moving forward this year. Finally, the budget includes $63 million in additional funding to implement the universal school meals program to account for an expected increase in the number of meals to be provided and a cost-of-living increase ( see K-12 Education section ). The $63 million is in addition to the increase included in the January proposal.

Governor Maintains Temporary Rate Increase, Pauses Slot Expansion

Thousands of families in California rely on subsidized child care and development programs administered by the California Department of Social Services (CDSS) as a critical resource for supporting their families to grow and thrive. While the state has made improvements to California’s child care system — most recently through reforming family fees and committing to an alternative methodology for child care provider reimbursements — the system is still falling short for many families and child care providers. For example, as of 2022, only one in nine children eligible for subsidized child care received services, despite growing demand. Moreover, the state released data this year showing that 73% of family child care providers do not pay themselves a salary. The administration therefore has an opportunity to advance progress toward creating an equitable child care system that meets the needs of all families and reflects the integral role of child care providers.

The governor’s revised budget:

• Pauses planned child care slot expansion at 119,000 new spaces.
• Maintains commitment to one-time funding for temporary subsidy rate increases but lacks a detailed plan for meeting federal deadlines to implement an alternative rate structure.
• Cuts funding for foster youth child care programs and support services.
• Includes $972 million in cost shifts to help ensure that unspent federal relief dollars are not reverted.

  In 2021-22, the governor committed to adding approximately 200,000 new child care slots by 2026-27. As of 2023-24, approximately 146,000 new slots were funded. Expansion was paused in 2023-24, and the state is still in the process of rolling out all intended new slots. Specifically, only about 119,000 new slots have been added. The revised 2024-25 budget paused slot expansion at this 119,000  “until fiscal conditions allow for resuming the expansion.” These proposed actions result in a reduction of $489 million in 2024-25 and $951 million in 2025-26 for subsidized child care slots. The April 24, 2024 Assembly Budget Subcommittee No. 2 on Human Services and Assembly Budget Subcommittee No. 3 on Education Finance discussed the possibility of creating a “reversion account” that would keep unspent funds for slot expansion within child care. This reversion account to maintain unspent dollars within child care is not included in the 2024-25 revised budget.

The 2023-24 budget provided a total of nearly $1.4 billion in one-time funds for temporary rate increases for providers reimbursed through the California Department of Social Services (CDSS). The 2024-25 proposed budget maintains this one-time funding. This one-time funding is set to expire July 1, 2025, which is also the federal deadline determining the new rate structure, per the alternative methodology currently being developed. If the new provider rates are not determined by this deadline, they will revert back to the 2018 regional market rate or standard reimbursement rate. The administration remains committed to developing a single rate structure and alternative methodology for child care reimbursements. However, given the need for spending associated with the alternative methodology to be included in the 2025-26 budget process and Child Care Provider United union negotiations, the lack of a detailed plan (i.e., confirming a timeline for when state agencies produce cost estimates) makes the state more vulnerable to missing the federal deadline.

The Emergency Child Care Bridge Program for Foster Children (Bridge Program) is administered through CDSS. The Bridge Program provides time limited vouchers for child care and child care navigator services for foster care system families and parenting foster youth. The revised budget reduces funding for the Bridge Program, reflecting a reduction of $34.8 million in 2024-25 and $34.8 million in 2025-26. Additionally, the revised budget maintains proposed cuts to the Family Urgent Response System (FURS) by $30.1 million. FURS is a hotline for current or former foster youth and their caregivers to call and get immediate help for any issue they may be experiencing. 

The Legislative Analyst’s Office (LAO) estimates that the state currently has $450 million of COVID-19 federal relief funds that may go unspent (set to expire September 30, 2024). Moreover, as of March 2024, the state had a Proposition 64 child care carryover balance of $296 million. The 2024-25 proposed budget plans to utilize all or a portion of these funds (among others) to offset General Fund costs for child care. Specifically, $596.8 will be shifted for 2023-24 and $375.5 will be shifted for 2024-25. This approach likely aligns with the LAO’s recommendation to minimize federal reversion of COVID-19 relief funds.

Governor Protects SSI/SSP but Cuts Key Services for People with Disabilities

All Californians should be included, supported, and treated with dignity in their communities, regardless of disability status. In California, people with disabilities can access several essential programs and services to manage their needs. The governor’s revised budget maintains a recent increase to the largest cash assistance program serving low-income Californians with disabilities, but builds on January’s proposed cuts and reduces support for key programs serving this population.

Specifically, the governor’s budget:

• Protects the recent grant increase to the State Supplementary Payment (SSP) program.

The Supplemental Security Income (SSI) and SSP programs together provide grants to over 1 million older adults with low incomes and people with disabilities to help them pay for housing, food, and other necessities. In recent years, state policymakers have made significant investments to increase SSP grants, however, the total grant levels remain below federal poverty levels. After deep cuts to the program during the Great Recession, grants cannot keep up with rising housing costs, making it difficult for low-income people with disabilities to make ends meet.

The governor’s January proposal included:

• Delaying, by one year, a scheduled raise for workers who care for people with intellectual and developmental disabilities.
• A funding delay for the Preschool Inclusion Grant program.

The governor proposes to implement this wage increase for around 150,000 workers on July 1, 2025 — one year later than anticipated. This delay would allow the state to avoid $613 million in new state costs in the 2024-25 fiscal year, with these costs instead reflected in the 2025-26 budget. More than 460,000 Californians with intellectual and developmental disabilities — including children receiving early intervention services — are expected to receive supports and services in 2024-25. Delaying pay increases for workers who provide these services could exacerbate staffing shortages across the disability system. This, in turn, would make it more challenging for individuals with disabilities and their families to receive the services that the Lanterman Act requires the state to provide.

The January budget proposal included a delay of $10 million General Fund for this program, which had been delayed to 2024-25 in previous years. This delay essentially postpones its implementation to 2026-27. The Preschool Inclusion Grant program was created in the 2022-23 budget with the goal of supporting preschool programs to include more children with developmental disabilities. This program and proposed reductions are different from the enrollment requirements as part of the California State Preschool Program (see “preschool inclusivity” bullet below).

The May Revision maintains these delays in funding and also:

• Eliminates the In-Home Supportive Services (IHSS) expansion coverage to undocumented Californians of all ages by cutting $94.7 million ongoing.
• Cuts the planned expansion of preschool inclusivity.
• Cuts $65 million for the Home Safe Program.
• Cuts $50 million for the Housing and Disability Advocacy Program.
• Cuts $44.8 million for Adult Protective Services (APS).
• Does not include funding to reform the Medi-Cal Share of Cost program.

IHSS is a key health care program that helps older adults with low incomes and people with disabilities live safely and with dignity in their own homes. Under the revised spending plan, about 14,000 Californians would lose access to IHSS solely due to their immigration status ( see the Coverage, Affordability & Access section ) .

Currently, at least 5% of California State Preschool Program enrollment must be for students with disabilities. The administration had planned to increase this proportion to at least 10% by 2026-27. However, the 2024-25 proposed budget cuts funding for this increase, reflecting a one-time General Fund savings of $47.9 million in 2025-26 and $97.9 million General Fund ongoing starting in 2026-27 ( see the Early Learning section ) . 

A ppropriated in the 2022 Budget Act, which supports the safety and housing stability of individuals involved in Adult Protective Services ( see the Homelessness section ) .

Appropriated in the 2022 Budget Act, which assists people experiencing or at risk of homelessness connect with disability benefits and housing supports ( see the Homelessness section ) .

This provides abuse intervention and support services to older adults and dependent adults who are unable to meet their own needs. This cut targets a recent expansion effort to address California’s growing aging population, which may limit the program’s reach, particularly for more complex cases.

This would alleviate financial burdens for many older adults and people with disabilities. Under the current Medi-Cal Share of Cost program, many Californians have to live at the maintenance need level in exchange for Medi-Cal services, which forces many to choose between paying for their health care, rent, food, or other basic needs ( see the Coverage, Affordability & Access section ) .

Proposal Eliminates and Delays Vital Services for Immigrant Californians, Maintains Cut to Legal Services

Immigrants are an integral part of California’s communities. They are not just part of the state’s mighty economic engine as taxpayers, entrepreneurs, and members of the workforce — they enrich our cultural identity as the Golden State. They are students, teachers, artists, chefs, religious leaders, colleagues, neighbors, and family members. 

California has the largest share of immigrant residents of any state. Over half of all California workers are immigrants or children of immigrants, and nearly 2 million Californians are undocumented, according to recent estimates .

State leaders have made notable progress in recent years working toward a California for all, where all people have access to economic opportunity and essential services, regardless of immigration status. Extending full-scope Medi-Cal eligibility to undocumented Californians is one significant example of this, and the governor’s May Revision maintains the final and most recent step in this expansion, extending coverage to adults ages 26 to 49. However, the revised budget takes a step backwards by eliminating or delaying other vital services for undocumented Californians that other Californians can access. Specifically, the revised budget:

• Permanently eliminates In-Home Supportive Services (IHSS) for all undocumented Californians.
• Delays expanding the California Food Assistance Program (CFAP) to undocumented adults age 55 or older, as promised in last year’s budget.

These services help Californians with low incomes who are over the age of 65, blind, and/or disabled live with dignity in their own homes. This harmful and xenophobic cut will cause about 14,000 Californians to lose access to IHSS solely due to their immigration status, potentially pushing them deeper into poverty ( see Health Coverage section ).

Instead of beginning in October 2025, these vital food benefits will be delayed until 2027, denying hundreds of thousands of older Californians access to assistance at a time when 45% of undocumented Californians with low incomes are affected by food insecurity ( see Economic Security section ).

The revised budget also maintains the governor’s January budget proposal to cut immigration legal services, which are a lifeline for immigrant families. Specifically, the May Revision:

• Continues to permanently cut funding for the Temporary Protected Status (TPS) Services program , eliminating $10 million General Fund in 2023-24 and each year thereafter, zeroing out all resources for this program. 
• Continues to permanently cut funding for the California State University Legal Services program by $5.2 million General Fund in 2023-24 and each year thereafter.

Cutting support for immigrant legal services is harmful. These services are crucial for helping immigrants stabilize their lives and remain in their communities. Immigration legal services can help put immigrants on a pathway to stability , particularly for those without status. Without access to legal services, immigrants can face greater risks of deportation and family separation, which can lead to financial hardship for families and adverse health outcomes . Given that newly arriving immigrants have the potential to grow the economy and contribute to state and local coffers, supporting them is a strategic investment in our collective future. 

The governor’s May Revision also reduces $29 million for the Rapid Response program in 2024-25, which helps sustain humanitarian support to individuals and families seeking safety at the California-Mexico border in partnership with local providers. This reversion in funds comes out of the $79.4 million General Fund reappropriated for the Rapid Response program from the 2021-22 and 2022-23 budget acts to 2023-24 as part of the early action budget deal approved by policymakers in April. The revised budget proposes no additional state funding for this program in 2024-25 despite the glaring need for continued investment . 

Eliminating and delaying vital services to Californians simply due to their immigration status would have a significant negative impact on immigrant communities and our collective prosperity and is a short-sighted approach to closing the state’s budget shortfall.

Governor Does Not Provide Needed Support to Domestic Violence Survivors

Every Californian deserves to live in a world where they feel safe. However, millions of Californians experience domestic and sexual violence every year — women, transgender, and non-binary Californians, and some women of color are most likely to experience this type of violence. 

Domestic and sexual violence prevention programs are proven ways to stop the violence from occurring in the first place by taking a proactive approach and seeking to shift culture on racial and gender inequities. Since 2018, state policymakers have provided small, one-time grants for prevention programs, administered by the California Governor’s Office of Emergency Services. Besides funding for prevention services, the state also receives federal funding through the Victims of Crime Act (VOCA) to help provide essential services to survivors of crime, including survivors of domestic violence. These funds help provide survivors with critical services like emergency shelter, counseling, and financial assistance. 

However, cuts to VOCA at the federal level are resulting in roughly a 45% cut to state grants for organizations that support survivors of crime, decimating the funding of many of these organizations who rely entirely on VOCA funding to provide these critical services. Additionally, the last round of prevention grants will run out at the end of 2024 . Prevention efforts take time, and organizations doing this critical work cannot commit to long term programming without permanent, ongoing funding.

In the May Revision, the governor:

• Does not provide funding to fill the gap in crime victim services funding.
• Does not provide continued funding for domestic violence prevention.
• Eliminates all funding for the cash assistance program for survivors.

In 2021-2022, the state stepped in and provided $100 million in one-time funding to backfill federal VOCA funding gaps. However, since 2019, funding has fallen far short of levels needed to maintain the services local organizations provide to more than 816,000 victims of crime. At the current funding levels, programs will have experienced a 67% cut in funding since 2019. While organizations are being forced to pause critical services to survivors of crime, the state continues to spend billions of dollars on prisons. The state could safely close up to five state prisons, which would result in savings of around $1 billion per year – some of which could be used to help support crime survivors ( see State Corrections section ).

While the 2023-24 budget extended state funding for domestic and sexual violence prevention grants, the governor does not propose any additional funding for new grants in the 2024-25 fiscal year, leaving many organizations uncertain as to how they will continue providing crucial services without funding.

In 2022-23, the state appropriated $50 million to establish the Flexible Assistance for Survivors (FAS) grant program. These dollars were meant to provide grants to community-based organizations to provide flexible assistance such as relocation, care costs, or other basic needs to survivors of crime. In January, the governor proposed delaying the $47.5 million program until 2025-26. However, the May Revision removes all state funding for the program, eliminating another support for survivors of crime.

While the governor has failed to include funding to support survivors of domestic and sexual violence among other crimes, a bipartisan group of Assemblymembers have issued an emergency budget request to address the VOCA funding shortfalls, recognizing the importance of protecting the state’s most vulnerable individuals. 

GUIDE TO THE STATE BUDGET PROCESS

See our report  Guide to the California State Budget Process  to learn more about the state budget and budget process.

Transitional Kindergarten Expansion Continues While Facilities are Cut

The California Department of Education (CDE) hosts two early learning and care programs: Transitional Kindergarten (TK) and the California State Preschool Program (CSPP). CSPP provides preschool to children ages 3 and 4 for families with low to moderate incomes. TK serves 4-year-olds, and eligibility is based on age alone in public schools and is not dependent on family income. Given the overlap with the child care and development programs administered through the California Department of Social Services, CSPP is included in recent family fee and rate reform wins (see Child Care section). However, as Universal TK continues to roll out and CDSS child care and development programs face cuts and delays, the administration has the opportunity to ensure that all early learning and care programs have the resources they need to prioritize family needs and early educator well-being. 

• Continues to fund the implementation of Universal TK expansion.
• Maintains CSPP slots and temporary reimbursement rate increases.
• Cuts the planned $550 million investment in preschool, TK, and full-day kindergarten facilities.

The initial year one expansion took effect during fiscal year 2022-23 and covered children whose fifth birthdays fell between September 2 and February 2 (the previous cut-off was December 2). The year two 2023-24 expansion provided eligibility to children who turn 5 between September 2 and April 2. The year three 2024-25 expansion will extend eligibility to children who turn 5 from April 2 to June 2. The revised budget includes $550 million from the General Fund for this year three expansion. As Universal TK continues to roll out, TK programmatic delays from 2023-24 are still relevant. Specifically, the following are delayed until 2025-26: 1) the reduction in TK classroom ratios to 1:10 and 2) the deadline for TK teachers to earn 24 units (or equivalent), a child development permit, or an early childhood education specialist credential.

The revised budget includes $1.4 billion in 2024-25 to maintain projected CSPP enrollment. As shared in the Child Care section , the 2023-24 enacted budget included one-time funding for temporary reimbursement rate increases and a commitment to developing an alternative methodology for provider rates. While this increase was negotiated by Child Care Providers United (CCPU) – representing home-based providers – the per-child temporary rate increase also applies to CSPP providers. Thus, the one-time funding promised for CSPP provider temporary rate increases is proposed to be maintained for 2024-25. Specifically, the revised budget includes $53.7 million from the General Fund to support reimbursement rate increases. Moreover, if the state does not determine the new rate structure by July 1, 2025, CSPP providers will also have their rates reverted to the 2018 standard reimbursement rate.

Facilities investments are intended to help build new school facilities or retrofit existing buildings in order to provide appropriate spaces for preschool, TK, and full-day kindergarten. The 2023-24 enacted budget reflected $550 million in 2024-25 to support this facilities program. This funding was delayed to 2025-26 in the January budget proposal. However, due to the projected budget shortfall, the dollars that were delayed to 2025-26 are now cut. The administration suggests that preschool, TK, and full-day kindergarten facilities could be added to an education bond proposal.

K-14 Education’s Minimum Funding Level Drops Due to Lower Revenue Estimates

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of annual funding for K-12 schools, community colleges, and the state preschool program. The governor’s May Revision assumes a 2024-25 Prop. 98 funding level of $109.1 billion for K-14 education. Because the Prop. 98 guarantee tends to reflect changes in state General Fund revenues and estimates of General Fund revenue in the May Revision are lower than estimates in the January budget proposal, the governor’s revised spending plan assumes a decrease in the Prop. 98 guarantee in 2023-24 and 2022-23. Specifically, the May Revision assumes a 2023-24 Prop. 98 funding level of $102.6 billion, $3 billion lower than the $105.6 billion funding level assumed in the governor’s January budget proposal. The 2022-23 Prop. 98 funding level of $97.5 billion is roughly $800 million below the $98.3 billion funding level assumed in January, but it is $9.8 billion below the level assumed in the 2023-24 budget agreement – the largest decline in an estimated Prop. 98 guarantee for a prior-year since Prop. 98 was adopted. 

To address this unprecedented drop in the 2022-23 Prop. 98 guarantee, the governor’s May Revision proposes using the same complex accounting maneuver as the one he proposed in January: the revised budget plan attributes $8.8 billion in reduced Prop. 98 spending to the 2022-23 fiscal year, which would help reduce state General Fund spending to the lower revised Prop. 98 minimum funding level. However, the revised spending plan would not take away the $8.8 billion from K-12 schools and community colleges — dollars they received for 2022-23 that have largely been spent. Instead, the governor proposes to shift the $8.8 billion in K-14 education costs — on paper — from 2022-23 to later fiscal years and pay for these delayed expenses using non-Prop. 98 funds. 

The May Revision also reflects withdrawals of $5.8 billion in 2023-24 and $2.6 billion in 2024-25 from the Public School System Stabilization Account (PSSSA) – the state budget reserve for K-12 schools and community colleges ( see Reserves section ). Because the revised 2023-24 PSSSA balance of $2.6 billion is not projected to exceed 3% of the total K-12 share of the Prop. 98 minimum funding level in 2023-24, current law would allow K-12 school districts to maintain more than 10% of their budgets in local reserves in 2024-25.

Budget Proposal Relies on Reserves to Support K-12 School Funding Formula

The largest share of Prop. 98 funding goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to 5.9 million students in grades kindergarten through 12. The governor’s May Revision maintains the proposal made in his January budget to withdraw funds from the Public School System Stabilization Account (PSSSA) – the state budget reserve for K-12 schools and community colleges – to support the Local Control Funding Formula (LCFF), the state’s main K-12 education funding formula. Specifically, the governor’s revised spending plan:

• Allocates $7.5 billion from the PSSSA to support ongoing LCFF costs.
• Increases one-time funding for green school buses by roughly $395 million, for a total of approximately $895 million.
• Reduces K-12 school facilities funding by $375 million.
• Provides funding for a 1.07% COLA for non-LCFF programs and the LCFF Equity Multiplier.
• Increases funding for universal school meals by $63.3 million.
• Maintains $25 million in ongoing funding for literacy screening training.

The LCFF provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. The May Revision includes a 1.07% cost-of-living adjustment (COLA) for the LCFF. To pay for the additional ongoing costs, the proposal would withdraw $5.3 billion from the PSSSA to fund the LCFF in 2023-24 and $2.2 billion to fund the LCFF in 2024-25.

The May Revision sustains a commitment made in the 2023-24 budget agreement to support the greening of school bus fleets through programs operated by the California Air Resources Board and the California Energy Commission in 2024-25. The governor’s proposal would increase 2024-25 funding for green school buses above the $500 million included in his January budget, but would reduce funding committed to the program to $105 million in 2025-26.

The 2022-23 budget agreement included an intention to allocate $875 million in one-time, non-Prop. 98 General Fund spending for the School Facility Program (SFP) to support K-12 facilities construction in 2024-25. The Legislature’s “early action” package approved the governor’s January budget proposal to reduce the 2024-25 SFP allocation by $500 million. The May Revision proposes to eliminate the remaining $375 million in 2024-25 SFP funding.

The governor’s January budget proposal included $65 million to fund a 0.76% COLA for the LCFF Equity Multiplier , established as part of the 2023-24 budget agreement, and for several categorical programs that remain outside of the LCFF, including special education, child nutrition, and American Indian Education Centers. The May Revision would increase ongoing funding to support these COLAs in 2024-25.

California established a Universal Meals Program in the 2022-23 school year that provides two free meals per day to any public K-12 student regardless of income eligibility. The governor’s January budget proposed $122.2 million to fully fund the program in 2024-25, and the May Revision proposes to increase this funding to pay for growth in the projected number of meals served and a COLA ( see Food Assistance section ) .

The 2023-24 budget agreement included a requirement for school districts to begin screening students in kindergarten through 2nd grade for risk of reading difficulties by the 2025-26 school year. The May Revision sustains the governor’s January budget proposal to provide funding to administer these literacy screenings.

Revised Budget Increases Reserve Withdrawals for Community Colleges Funding

A portion of Proposition 98 funding provides support for California’s Community Colleges (CCCs), the largest postsecondary education system in the country, which serves high percentages of students of color and students with low incomes. CCCs prepare more than 1.8 million students to transfer to four-year institutions or to obtain training and employment skills. 

The 2024-25 revised spending plan increases withdrawal amounts from the Prop. 98 reserve for CCC apportionments and provides additional resources to fund an increase in the cost-of-living adjustment (COLA). 

Specifically, the governor’s revised budget includes:

• Reserve withdrawals totaling $914.1 million from state budget reserves for CCC apportionments.
• A 1.07% COLA for apportionments and other programs.

The governor proposes a withdrawal of $381.6 million from the Prop. 98 reserve (also known as the Public School System Stabilization Account or PSSSA) ( see Reserves section ) in 2023-24 and $532.6 million in 2024-25 for the Student Centered Funding Formula (SCFF).

This includes $100.2 million ongoing Prop. 98 dollars for the SCFF. The revised spending plan also provides ongoing Prop. 98 resources to provide the same percentage COLA to other CCC categorical programs and the Adult Education Program.

Revised Proposal Maintains Deferrals for the CSU and UC Systems

California supports two public four-year higher education institutions: the California State University (CSU) and the University of California (UC). The CSU provides undergraduate and graduate education to nearly 460,000 students at 23 campuses, and the UC provides undergraduate, graduate, and professional education to more than 290,000 students across 10 campuses. 

The governor’s revised budget includes additional cuts to higher education and maintains funding deferrals for both of the state’s public university systems. 

The January proposal included:

• A deferral of $240 million General Fund dollars from 2024-25 to 2025-26 for the CSU.
• Deferrals totaling $259 million General Fund dollars from 2024-25 to 2025-26 for the UC.
• A reduction of $494 million in General Fund dollars for the California Student Housing Revolving Loan Fund Program.

These dollars were meant to fulfill multi-year funding increases as part of the CSU compact. Under this proposal, the governor intends to restore this funding commitment in 2025-26, along with the scheduled base increase for the fourth year of the agreements. Additionally, the administration would also provide a one-time payment of $240 million in 2025-26 as part of the deferral.

This includes a deferral of $228 million for base increase as part of the multi-year compact with the UC and $31 million to support the UC in increasing the number of resident undergraduate students. In 2025-26, the governor intends to restore the $228 million on top of the increase scheduled for the fourth year of this compact and provide a total of$62 million for resident undergraduate enrollment, reflecting the deferred amount and that year’s increase for this purpose. The administration would also provide one-time payments of $228 million and $31 million to compensate for the deferrals in 2024-25 of the same amount.

The proposal pulls back $194 million in 2023-24 and $300 million in 2024-25. This program provides interest-free loans to campuses for new student housing projects.

The May Revision maintains these proposals and also include the following cuts in higher education:

• An ongoing reduction of nearly $14 million General Fund for the Proposition 56 General Fund backfill that supports Graduate Medical Education programs at the UC. 
• An ongoing cut of $13 million General Fund for the UC Labor Centers. This funding provides support for economic research and labor education across various UC campuses. 
• A reduction of $485 million General Fund of unspent one-time dollars for the Learning-Aligned Employment Program. The program provides resources for students at public colleges and universities to earn money while learning in a field related to their educational and career interests ( see Workforce section ).
• A $60 million General Fund cut for the Golden State Teacher Grant Program. This program provides awards to students in professional preparation programs and who are working toward a teaching credential. 

May Revision Abandons Commitments to Expand Student Financial Aid

The budget shortfall and proposed solutions significantly impacts access to financial aid opportunities for California students. The May Revision does not include funding for the anticipated reform to the Cal Grant program and reduces funding for the Middle Class Scholarship (MCS). 

Specifically, the revised spending plan:

• Does not trigger the Cal Grant Reform Act.
• Walks back expansion of the MCS.

Given the multi-year shortfall, the revised spending plan does not include funding for the Cal Grant Reform Act, which was included in the 2022-23 budget, and the governor does not propose any budgetary actions to phase in the program. Trailer bill language as part of the 2022-23 budget stated that the reform would become operative if General Fund dollars “over multi-year forecasts” are available beginning in 2024-25. The Cal Grant is California’s financial aid program for low-income students pursuing postsecondary education in the state. These grants support students by providing financial assistance so they can afford the costs of college attendance, including meeting their basic needs such as housing, food, transportation, and child care. The Cal Grant Reform Act would reach thousands of new students who were previously not eligible and would also allow more students to qualify for CalFresh food assistance, freeing up resources for institutions to support students with other non-tuition costs.

The May Revision proposes an ongoing cut to the MCS of $510 million . The revised spending plan also includes an additional spending reduction of more than $20 million, reflecting revised program estimates. These two actions reduce total spending for the program down to $100 million ongoing, reflecting an 88% drop from the 2023-24 total funding level. The May Revision also maintains the January proposal to abandon a planned one-time investment of $289 million that was included as part of the 2023-24 budget. The state created the MCS program in 2013-14 to provide partial tuition coverage to CSU and UC students who were not eligible for Cal Grants. The program was revamped in 2022-23 by increasing funding and implementing new rules. Due to these changes, a broader group of students received the awards. Eligible students include those who qualify based on income (maximum household income is $217,000), low-income students who qualify through other requirements, and community college students in bachelor’s degree programs.

Overall, these budget choices have consequences for college affordability, degree attainment, and overall student well-being. Students pursuing postsecondary education confront significant hardship to afford basic necessities , and they are often forced to make difficult decisions that impact their college experience and degree completion .

May Revision Calls for Deactivating Prison Housing Units, but Not Prison Closures

More than 93,000 adults who have been convicted of a felony offense are serving their sentences at the state level , down from a peak of 173,600 in 2007. This sizable drop in incarceration is largely due to justice system reforms adopted since the late 2000s, including Proposition 47 , which California voters passed with nearly 60% support in 2014 . Despite this substantial progress, American Indian, Black, and Latinx Californians are disproportionately represented in state prisons — a racial disparity that reflects racist practices in the justice system as well as structural disadvantages faced by communities of color.

Among all incarcerated adults, most — about 90,000 — are housed in state prisons designed to hold roughly 75,500 people. This overcrowding equals 119% of the prison system’s “design capacity,” which is below the prison population cap — 137.5% of design capacity — established by a 2009 federal court order. California also houses around 3,000 people in facilities that are not subject to the cap, including fire camps, in-state “contract beds,” and community-based facilities that provide rehabilitative services.

• Calls for deactivating 46 housing units across 13 state prisons, for ongoing annual state savings of around $80 million.
• Fails to advance a plan to close state prisons.
• Proposes deep cuts to the Adult Reentry Grant (ARG) program.

The housing units proposed for deactivation contain roughly 4,600 beds. However, the state prison system currently operates with about 15,000 empty beds . Moreover, closing housing blocks rather than entire prisons saves the state less money because ongoing operational and staffing costs are higher when prisons remain open. For example, while the governor’s proposal would reduce state costs by around $80 million per year, the state would save around $200 million per year for every prison it closes. Given California’s challenging fiscal outlook, state leaders should be exploring ways to significantly reduce spending on prisons in order to ensure the wise use of state tax dollars and maximize state savings.

In recent years, California has ended the use of private prisons and shut down three state prisons. State leaders can — and should — go further. In fact, due to the large number of empty prison beds, the state could safely close up to five additional prisons, according to the Legislative Analyst’s Office . Closing five more state prisons would save around $1 billion per year — dollars that could be redirected to help incarcerated individuals successfully transition back to their communities as well as support crime survivors, reduce poverty, increase housing stability, and address substance use and mental health issues. Unfortunately, the May Revision fails to advance a plan to close more prisons, with the governor instead focusing on deactivating selected prison housing units for far less state savings.

Community-based organizations use ARG funds to help formerly incarcerated people successfully transition back to their communities. In January, the governor proposed to cut $7.8 million in unspent ARG funds from 2022-23 as well as to delay $57 million in ARG funds budgeted for 2024-25 to the next three fiscal years (2025-26 to 2027-28 — providing $19 million per year). The May Revision maintains the $7.8 million cut and also proposes two significant reductions: 1) eliminate (rather than delay) the $57 million budgeted for 2024-25 and 2) cut $54.1 million in ARG funds budgeted for 2023-24. The governor’s proposal represents a major step back from recent efforts to ensure that people released from prison are prepared to successfully reenter their communities.

Revised Budget Continues to Provide Over $100 Million to Address Retail Theft

Retail theft  is defined in several ways  in California law:

• Shoplifting
• Commercial burglary
• Organized retail theft

Shoplifting occurs when the value of stolen goods is $950 or less (petty theft) — a limit set by Proposition 47 of 2014 . Shoplifting is generally a misdemeanor, but may be charged as a misdemeanor or a felony if the defendant was previously convicted of certain severe crimes or is required to register as a sex offender.

Commercial burglary covers higher-value retail theft (grand theft) and can be charged as a misdemeanor or a felony.

Organized retail theft , a specific type of theft created by the Legislature in 2018 , is punishable as a misdemeanor or a felony.

Robbery , a felony, occurs when force or a threat of force is involved. “Smash and grab” incidents are prominent examples of robberies affecting retail businesses.

Retail theft rose following the isolation and social breakdown caused by the COVID-19 pandemic. In California, commercial burglary and robbery rates continued to exceed their pre-pandemic (2019) levels as of 2022, the most recent year for which statewide data are available. In contrast, California’s statewide shoplifting rate remains below the 2019 level despite a recent increase.

In January, Governor Newsom proposed to provide $119 million in 2024-25 to address organized retail theft and other crimes. This was the same amount of General Fund support provided in the current fiscal year (2023-24) despite the large budget shortfall the state is facing.

The May Revision modestly reduces the total funding level from $119 million to $115.4 million. This reflects a $3.6 million cut to the Vertical Prosecution Grant Program, which would see its funding reduced from $10 million to $6.4 million in 2024-25. The governor does not propose cuts in 2024-25 to other components of his organized retail theft package, which includes $85 million for local law enforcement agencies and $24 million for state-level task forces and prosecution teams.

Revised Budget Estimates Proposition 47 Savings of $95 Million for Local Investments

Overwhelmingly approved by voters in 2014, Prop. 47 reduced penalties for six nonviolent drug and property crimes from felonies to misdemeanors. Consequently, state prison generally is no longer a sentencing option for these crimes. Instead, individuals convicted of a Prop. 47 offense serve their sentence in county jail and/or receive probation.

By decreasing state-level incarceration, Prop. 47 reduced the cost of the prison system relative to the expected cost if Prop. 47 had not been approved by voters. The Department of Finance is required to annually calculate these state savings, which are deposited into the Safe Neighborhoods and Schools Fund and used as follows:

• 65% for behavioral health services — which includes mental health services and substance use treatment — as well as diversion programs for individuals who have been arrested, charged, or convicted of crimes. These funds are distributed as competitive grants administered by the Board of State and Community Corrections.
• 25% for K-12 school programs to support vulnerable youth. These funds are distributed as competitive grants administered by the California Department of Education.
• 10% to trauma recovery services for crime victims. These funds are distributed as competitive grants administered by the California Victim Compensation Board.

As of the 2023 Budget Act, the state has allocated roughly $720 million in savings attributable to Prop. 47 — funds that have been invested in local programs that support healing and keep communities safe. For example, a recent evaluation shows that people who received Prop. 47-funded behavioral health services and/or participated in diversion programs were much less likely to be convicted of a new crime. Specifically, individuals enrolled in these programs had a recidivism rate of just 15.3% — two to three times lower than is typical for people who have served prison sentences (recidivism rates range from 35% to 45% for these individuals).

The May Revision estimates that Prop. 47 has generated an additional $94.8 million in state savings due to reduced state-level incarceration. These dollars will be allocated through the 2024 Budget Act, increasing Prop. 47’s total investment in California’s communities to more than $800 million since these savings were first allocated through the 2016 Budget Act.

Governor Proposes Additional Cuts to Several Workforce Programs

The revised budget proposes to cut spending on several workforce development programs to help address the multi-year budget problem. ( See Health Workforce section. ) Specific cuts include:

• $50 million General Fund in 2024-25 and 2025-26 to California Jobs First (formerly called the Community Economic Resilience Fund).
• $20 million General Fund in 2024-25 to the California Youth Leadership Corp
• $20 million General Fund in 2025-26 to the Apprenticeship Innovation Fund at the Department of Industrial Relations.
• $10 million General Fund ongoing for the Women in Construction Unit at the Department of Industrial Relations.
• $10 million General Fund in 2025-26 for the Department of Industrial Relations’ California Youth Apprenticeship Program.

This program is an inter-agency partnership that supports strategies to diversify local economies and develop sustainable industries that create high-quality, broadly accessible jobs.

This is an initiative of the Workforce Development Agency, certain community colleges, and non-profit organizations that prepares historically marginalized youth to become community organizers and change agents in their local communities.

This is in addition to the $40 million General Fund delay in 2024-25 that was included in the governor’s January budget.

This aims to increase opportunities in the construction industry for women, non-binary, and underserved communities.

This provides apprenticeships for youth ages 16 to 24. This cut is in addition to the $25 million General Fund spending delay in 2024-25 that was included in the governor’s January budget.

In addition, the revised budget cuts $485 million General Fund in unspent one-time funds for the Learning-Aligned Employment Program in 2022-23. This program places eligible students at public colleges and universities in employment opportunities related to their area of study or career objectives. ( See higher education sections .)

Revised Budget Proposes Further Cuts to Prior Environment Commitments

Californians across the state have increasingly seen the effects of climate change through devastating fires, droughts, and floods, but communities of color and low-income communities are often hit hardest by these catastrophes due to historical and ongoing displacement and underinvestment. Additionally, these communities are more likely to be exposed to environmental pollutants for the same reasons. 

Significant investments in climate resilience were made through recent years’ budgets. Most of the commitments were one-time investments intended to be made across several years, so there are significant unspent funds remaining. In January, the governor proposed budget solutions that included $2.9 billion in reductions and $1.9 billion in delays of climate investments committed in previous budget agreements. Several of these proposals were included, or partially included in the early action agreement between the governor and the Legislature.

The May Revision proposes around $1 billion in additional reductions to climate and environment programs for 2022-23 as well as further reductions to planned spending beyond the current budget window. Reductions are proposed in areas including but not limited to clean energy and transportation, water and drought resilience, and wildfire resilience.

Significant new reductions that may disproportionately impact low-income and under-resourced communities include:

• $399 million for the Active Transportation Program across 2025-26 and 2026-27 ($300 million in 2025-26 and $99 million in 2026-27).
• $268.5 million for the Cleanup in Vulnerable Communities Initiative ($136 million in 2023-24, $85 million in 2025-26, and $47.5 million in 2026-27).
• $140 million for the Equitable Building Decarbonization program across 2024-25 and 2025-26 ($53 million in 2024-25 and $87 million in 2025-26).

This program supports walking and biking options with the goals of improving safety and mobility and reducing greenhouse gas emissions. The Transportation Commission notes that 85% of funds committed have gone to projects benefiting disadvantaged communities.

The initiative was created in 2021 and committed $500 million across four years to clean up hazardous waste sites in communities subject to environmental hazards.

This program provides funds for 1) energy retrofits for low and moderate income households and 2) incentives for the adoption of energy efficient technologies, at least half of which must benefit under-resourced communities. This appears to be in addition to the $286 million proposed reduction across several years included in the January proposal.

You may also be interested in the following resources:

Governor newsom proposes harmful cuts, policymakers have alternatives, guide to the california state budget process, stay in the know..

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Schumer Says US Senate Will Try Again to Pass Border Bill

FILE PHOTO: A drone view shows asylum-seeking migrants from Colombia, Peru and Panama as they walk to surrender to immigration officials after crossing the border into the U.S. from Mexico in Jacumba Hot Springs, California, U.S., May 16, 2024. REUTERS/Adrees Latif/File Photo

(Reuters) -U.S. Senate Majority Leader Chuck Schumer said on Sunday the Senate would once again try to pass a bipartisan border security bill this week after a previous attempt failed when enough Republicans withdrew their support at the urging of former President Donald Trump.

"I hope Republicans and Democrats can work together to pass the bipartisan Border Act this coming week," Schumer said in a letter to senators.

The Border Act would reform U.S. asylum laws, hire thousands of border agents and seek to curtail fentanyl smuggling, among other measures, the Democratic leader said.

Leaders of the Republican-controlled House of Representative called the bill politically motivated.

"Should it reach the House, the bill would be dead on arrival," House Speaker Mike Johnson and other Republicans said in a statement.

The White House said it strongly supported the legislation.

The previous legislation was tied to U.S. foreign aid for Ukraine and Israel, but this bill would stand alone, Schumer said.

Record numbers of migrants have been caught crossing the U.S.-Mexico border since Democratic President Joe Biden took office in 2021, and border security has become one of the leading issues in the presidential campaign. Trump is seeking to return to office by challenging Biden in the Nov. 5 election.

In February, a bipartisan immigration bill stalled in the Senate after Trump told Republicans not to support it even though it contained several border-security measures they had sought.

"The former President made clear he would rather preserve the issue for his campaign than solve the issue in a bipartisan fashion. On cue, many of our Republican colleagues abruptly reversed course on their prior support, announcing their new-found opposition to the bipartisan proposal," Schumer said.

(Reporting by Daniel Trotta; editing by Donna Bryson, Sandra Maler and Chizu Nomiyama)

Copyright 2024 Thomson Reuters .

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Areas of academic research with the impact of COVID-19

Abid haleem.

a Department of Mechanical Engineering, Jamia Millia Islamia, New Delhi, India

Mohd Javaid

Raju vaishya.

b Department of Orthopaedics, Indraprastha Apollo Hospital, Sarita Vihar, Mathura Road, 110076 New Delhi, India

S.G. Deshmukh

c Department of Mechanical Engineering, Indian Institute of Technology Delhi, New Delhi, India

Coronavirus (COVID-19) endemic is growing exponentially in the whole world. Researchers, technologists, doctors and other healthcare workers are working day and night on the development of vaccine and medicinesto control and treat this virus. SARS-CoV-2 is the name of the virus responsible for causing COVID-19 disease, which is highly infectious and lethal.With exponentially increasing infections, proportionate fatalities are being reported both from developed and under developed countries. As of today, more than one million people across the world have been reported infected with this virus, and more than 65,000 people have died of this disease. Hence, there is an urgent requirement for conducting academic research on several aspects of this highly contagious disease, to find effective means of containment and treatment of the disease, for now, and in future. We have identified some opportunities for academic research related to COVID-19 and have also provided suggestions to contain, prevent and treat this viral infection.

The SARS-CoV-2 virus has significantly affected the health, economy, and socio-economic fabric of the global society. The costs involved in the containment and treatment of this infectious disease are exorbitantly high, which even the wealthiestand developed countries are finding it difficult to sustain. COVID-19 pandemic has severely impacted the crude, stock market, gold and metals and almost all areas of the global market [ 1 ]. Large research laboratories and corporate houses are working with a high speed to develop medicines and vaccines for the prevention and treatment of this dreaded disease. To deal with these current health management challenges, we need a comprehensive understanding of the effect on the health system, global business, and culture. COVID-19 was declared a pandemic by the WHO on 11th March 2020 [ 2 ]. COVID-19 has become an international emergency in a short period and will have long-lasting effects. There is an urgent need to identify and study the areas of academic research which will be impacted by COVID-19 [ 3 ].

1. Research objectives

This manuscript highlights potential areas of academic research which are likely to be impacted by COVID-19. The main objectives of this paper are to provide awareness and to identify the research areas related to COVID-19. It may help improve the understanding of this disease and describe the psychological impacts of this pandemic and how these could change as the disease spreads.

2. Current limitations and gaps in the knowledge of Coronavirus and its effects

It appears the Coronavirus is zoonotic and originated in China. Scientists have not yet been able to identify the animal source of the infectious agent and have not determined whether a persistent animal reservoir of the infectious agent exists. It is also unclear whether SARS, like influenza, is a seasonal disease that would have receded on its own. It remains to be seen whether it will reemerge on a seasonal basis, and if so, how virulent future manifestations would be. The answers to these questions would undoubtedly advance the world's ability to predict and prepare for a resurgence of COVID-19.

3. Significant research areas on COVID-19

COVID-19 has disrupted the economies and the lives of individuals around the world. There are many areas of research needed regarding COVID-19 [ [4] , [5] , [6] ]. Table 1 identifies significant research areas which be profoundly impacted by this pandemic. We need to undertake extensive research on these areas.

Major research areas which will be impacted by COVID-19.

Extensive research is required for the development of a vaccine for the prevention of Coronavirus infection. There is an urgent need for early production and manufacturing of the essential items like personal protective equipment, medicines, and ventilators to combat this pandemic. All measures to keep a social distancing by the public must be ensured by avoiding social-cultural and religious programs and festivals etc. during this pandemic. Along with these, healthcare measures to deal with COVID-19 pandemic, there is also an imminent requirement for theresearch to improvethe global economy, which has taken a tremendous beating and is unlikely to recover in the near future [ 7 , 8 ].

4. Conclusion

COVID-19 pandemic is a public health emergency of international concern.It has posed new challenges to the global research community. With the help of academic research, there is a need for a better understanding of the COVID-19 and its socio-economic ramifications on society. The future research will be multi-disciplinary and trans-national.We see a new wave of research in the biological and the medical sciences for the well-being of the civilization.

Declaration of competing interest